Government Seeks Higher Borrowing Limit

Government writes to RBI, seeks higher borrowing limit for Exim Bank-Times of India--By SMT Gayatri Nayak

MUMBAI: The government has sought a relaxation in the Reserve Bank of India's borrowing limit for Exim Bank to allow the export finance institution to play a bigger role in lending to big ticket , export-oriented projects. Exim Bank has asked for a 50% increase in the borrowing limit to 15% of its net owned funds, or NOF. Besides this, it has asked for a $10-billion line of credit from forex reserves to support highvalue project exports from India.

In a letter to the RBI governor, the commerce secretary has asked for differential treatment from commercial banks and sought a higher borrowing limit for Exim Bank. "If Indian project exports are to compete with China on the basis of co-financing offered by Exim Bank, its leverage ratio may be raised from the present 10 times of NOF to at least 15 times of NOF," the letter said. The ministry has also sought an additional window for funds from the central bank's reserves.

"RBI may consider a special line of credit of about $10 billion from its reserves to the Exim Bank at the same rate at which it earns in deployment of its reserves in the international money market," the letter said. RBI had earlier provided funding support of $5 billion from its reserves to India Infrastructure Finance Company, or IIFCL. The government has also asked the central bank to consider exposure norms for individual borrowers and borrower groups for enhancement from the present ratio of 15% and 40% to 25% and 50%, respectively.

The current norms restrict Exim Bank's funding to a single project to up to Rs 1,200 crore because of which it cannot lend to large-value projects , especially in railways, roads and power sectors. Such Indian projects are in demand in many neighbouring countries as well as some developing countries in Africa.

"We are seeking higher borrowing limits to help boost the country's exports and kickstart the economy and curtail the current account deficit," Exim Bank Chairman & Managing DirectorYaduvendra Mathur told ET.

At the end of March, 319 project export contracts valued at Rs 1.4 lakh crore (about $23.42 billion) supported by Exim Bank were under execution in 74 countries across Asia, Africa and CIS by 99 Indian companies. The current borrowing limit of up to 10 times of NOF is on par with prevailing norms for commercial banks while China's Exim Bank can borrow up to 70 times. Differential treatment for Exim Bank is justified because unlike commercial banks it does not depend on public deposits for its lending, the government has said.

Deposits account for less than 1% of Exim Bank's balance sheet. Besides, the letter said, "As a fully owned bank of the central government , there is in fact an implicit assurance to the stakeholders of the central government support (in extreme situation)."
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