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Credit policy: A little impact on exports

The mid-term review of the monetary and credit policy for 2002-03 announced by Dr Bimal Jalan, governor of the Reserve Bank of India, is welcome for the textile industry on the production front, but is not all that gratifying on the export gate. Basically, the bank rate has been cut by 25 points to reach 6.25 per cent. Likewise, the repo rate has been lowered to 5.5 per cent from 5.75 per cent and the Cash Reserve Ratio (CRR) to 4.75 per cent from 5 per cent. The cumulative impact is that there would be an additional availability of Rs 3,000 crore with the financial organisations. In other words, such an additional fund would be available for lending to the industries. So, that is good news even for the ailing textile industry. In addition to the relatively more finance available for lending, the textile industry can now look forward to a still lower rate of interest on their borrowings. In fact, 6.25 per cent bank rate is the lowest in the last 30 years. So, the textile industry could not have availed of a loan at the forthcoming interest level in the recent past.

Dr Jalan as confirmed that the present rate would continue at least until March 2003 unless drastic circumstantial changes force to decide otherwise. He has also confirmed that there is a comfortable gap between the bank rate and the lending rate adopted by the banks. Hence, the banks do have their own margin and can lower the lending rate to the borrowers. This explains that the textile industry can hope for lower rate of lending till March 2003. But, these policy announcements do come with a rider. The RBI hardly has any direct hold on the banks’ lending rate of interest. “We can only review the rates, not direct the banks to lend at any particular rate,” Dr Jalan has said. And, in any case, the banks do enjoy the freedom to fix their own rate of interest based on the PLR and the individual client’s credibility, etc. So, there are instances of even the textile mills enjoying the loans at rates just marginally higher than the PLR. This is an acknowledgement of not only the repaying capacity of the mills, their profitability and managerial efficiency, but the loyalty to the bank over the years. All the same, a mere availability of an additional fund may not be a direct factor for the banks to increase their lendings to the textile industry because, it is not the lack of funds which has been holding the advances to the industry. The banks have first to convince themselves that the industry as a whole and the individual units concerned have sufficient repayment capacity and would come out of the red mostly through their production, marketing and managerial efficiency rather than mercy sought from the government. It is in this context that the industrial associations representing the textile industry have not been successful. They would recall the numerous meetings the banks have had with them and the individual units, but of no mentionable avail in the long run. A spokesman of the South Indian Mill Owners’ Association (SIMA) told this columnist some time back that it was a mere waste of time and effort to talk to the bankers on the revival of the textile industry. So, the real benefit of the new credit policy would flow to the textile industry only if the banks change their attitude and outlook towards this industry. For the exporters, however, the credit policy has a thing or two to rejoice generally. The RBI has deregulated the ceiling rates on pre-shipment credit beyond 180 days and up to 270 days as also post-shipment credit beyond 90 days and up to 180 days, effective from May 1, 2003. This is a move towards deregulating the credits further in the coming months. The idea is that this would increase the flow of credit to the exporters. There are exporters who get loans for 7 per cent interest today. So, the new policy does not make this still cheaper. On the contrary, the time factor variation could help the exporters offer a slightly longer period of recovery to their customers which could, in turn, push up the demand for their products. This is true of the textile exports as well.

- P S Sundar