In order to further boost exports, steps have been taken to ensure greater availability of finance for exporters at concessional rates of interest. Export credit outstandings as of December 1993 represented 10.5% of bank credit. Annual interest charges for post-shipment finance were 6.5% for dollar denominated loans and 15% for rupee denominated loans.
The principal financial institution for financing, facilitating and promoting India's foreign trade is the Export Import Bank of India (Exim Bank). Its operations include deferred payment credit for exports, production loans for export oriented units, guarantees and financing of overseas joint ventures and turnkey contracts executed by Indian companies.
Financial institutions such as the Industrial Development Bank of India, Industrial Credit and Investment Corporation of India, Industrial Finance Corporation of India and State Financial Corporation also provide financial assistance to companies setting up export manufacturing projects. Loans are generally granted for a period of eight years with an initial moratorium upto two years available for the principal amount in the case of new units. Margin money requirement is 25%.
Commercial banks provide working capital assistance at the pre-shipment stage for procurement of raw materials and to meet other manufacturing costs, etc., and at the post-shipment stage by way of purchase/discount or negotiation of export bills.
The Export Credit and Guarantee Corporation (ECGC) provides export guarantees by offering risk insurance cover to exporters. It also enables exporters to obtain better facilities from banks and financial institutions by offering guarantees.
EOUs/EPZ units, as well as other units capable of generating net foreign exchange (NFE) earnings, can raise foreign currency loans for capital goods, raw materials, components, technology payments or even for financing the local rupee cost of the project.
Such loans are to be repaid from NFE earnings of the project and hence borrowers are not permitted to provide any guarantee for repayment from Indian banks, financial instititions or branches of foreign banks. A minimum maturity period of 2 years is required for such loans. The permissible interest payable on foreign currency loans is the prime rate in force in the currency of the loan, or six months floating rate plus a reasonable spread, which ever is higher.