New Delhi, Sept. 28: The Reserve Bank of India (RBI) is considering a proposal to allow exporters to securitise long-term export earnings with offshore banks or special purpose vehicles abroad which will lend them working capital in advance against receivables.
Currently, domestic banks lend working capital only in rupee denomination against export receivables, but this is for shorter terms or at higher rates of interest between 7-13 per cent compared with 1-5 per cent accessible elsewhere.
The logic behind this move, which is supported by leading industry chambers, is that it would give rated exporters cheaper long-term foreign currency loans.
Analysts said securitisation backed by future receivables helps higher corporate funding and also ensures a smooth flow of working capital even if the company suddenly develops a financial crisis.
“Production remains insulated from financial vagaries which might hit a company,” said a top corporate official. “Financial crisis, asset deflation and pressures of competition have adversely affected the ability of many companies to access the much-needed capital for exports,” he added.
However, several issues need to be resolved before the central bank can agree to this form of securitisation. Also, guidelines on remittance of money from the offshore bank or the special purpose vehicle into the country need to be formulated, bankers said.
They added that an amendment in the Banking Regulation Act would be required to allow commercial banks to provide long-term guarantee since currently they are not allowed to do so unless it is for project exports where Export Credit Guarantee Corporation of India is involved.
Moreover, the legal and accounting status of a long-term guarantee in the bank’s balance sheet should be defined. “It needs to be clarified whether it would be treated as a term loan or be adjusted under some accounting head,” said a state-run banker.
Analysts feel, to start with, the extension of performance guarantee could be made applicable to firms, like infrastructure companies, where long-term assets have been created which involves a long gestation period.
Secondly, in case of unforeseen events or where the nature of business is risky, banks would extend performance guarantee only if the possibility of price fluctuations was minimised, they said.