Executive Summary:
This document announces the extension of the Interest Equalization Scheme (IES) for Pre and Post Shipment Rupee Export Credit until June 30, 2024. It maintains the interest equalization rates at 2% for Manufacturers and Merchant Exporters under specified HS lines and 3% for MSME manufacturers. It also introduces modifications regarding average interest rates and subvention amount caps.
Key Points / Main Content:
* **Extension of Interest Equalization Scheme (IES):**
* Scheme extended until June 30, 2024.
* **Interest Equalization Rates:**
* 2% for Manufacturers and Merchant Exporters exporting under specified 410 HS lines.
* 3% to MSME manufacturers exporting under any HS line.
* **Modifications to the Scheme:**
* **Average Interest Rate:** Banks pricing loans under the scheme at an average interest rate greater than Repo Rate +4% may face restrictions. DGFT will identify banks in breach and may restrict or debar them until an undertaking is furnished.
* **Cap on Subvention Amount:** Annual net subvention is capped at Rs 10 Cr per Importer-Exporter Code (IEC) from April 1, 2023.
* **Other Provisions:**
* All other provisions from previous circulars remain unchanged.
Impact Analysis:
**Scheduled Commercial Banks (excluding RRBs), Primary Urban Cooperative Banks, State Cooperative Banks scheduled banks having AD category-I license, and Exim Bank**
* *Impact:* Banks need to be aware of the scheme's extension, revised interest equalization rates, and modifications concerning average interest rates and subvention caps. Banks with average interest rates exceeding Repo Rate +4% may face restrictions or debarment.
* *Action Required:* Banks should monitor their average interest rates to ensure compliance with the Repo Rate +4% limit. Banks in breach must furnish an undertaking to DGFT. They must also adhere to the subvention cap of Rs 10 Cr per IEC.
**Manufacturers and Merchant Exporters & MSME manufacturers**
* *Impact:* Exporters can continue to benefit from the Interest Equalization Scheme.
* *Action Required:* Exporters should be aware of the scheme's extension and the applicable interest equalization rates, as well as the subvention cap.
**Directorate General of Foreign Trade (DGFT)**
* *Impact:* DGFT is responsible for monitoring the scheme and identifying banks that breach the average interest rate provision.
* *Action Required:* DGFT needs to assess banks' compliance with the average interest rate provision, identify banks in breach, and potentially restrict or debar them. They also need to monitor compliance with the subvention cap.
Key Entities Referenced
Interest Equalization Scheme: A scheme by the Government of India to provide interest equalization for pre and post shipment rupee export credit.
Pre and Post Shipment Rupee Export Credit: Type of export credit to which the Interest Equalization Scheme applies.
Government of India: The governing authority that extended the Interest Equalization Scheme.
MSME: Micro, Small and Medium Enterprises. Beneficiaries of the Interest Equalization Scheme.
Directorate General of Foreign Trade: Agency responsible for identifying banks in breach of interest rate provisions and monitoring compliance with the Interest Equalization Scheme.
Repo Rate: The rate at which the central bank of a country lends money to commercial banks in the event of any shortfall of funds
Exim Bank: Export-Import Bank of India, a financial institution.
Vaibhav Chaturvedi: Chief General Manager at Reserve Bank of India (RBI).
RBI/2023-24/124
DOR.STR.REC.78/04.02.001/2023-24 February 22, 2024
All Scheduled Commercial Banks (excluding RRBs),
Primary (Urban) Cooperative Banks & State Cooperative Banks (scheduled banks having
AD category-I license), and Exim Bank
Dear Sir / Madam,
Interest Equalization Scheme (IES) on Pre and Post Shipment Rupee Export Credit
Please refer to the instructions issued vide circulars No. DOR.STR.REC.93/04.02.001/2021-
22 dated March 8, 2022 and DOR.STR.REC.39/04.02.001/2022-23 dated May 31, 2022.
2. Government of India has allowed for extension of the Interest Equalization Scheme for
Pre and Post Shipment Rupee Export Credit (‘Scheme’) up to June 30, 2024. The rate of
interest equalization shall be 2% for Manufacturers and Merchant Exporters exporting under
specified 410 HS lines and 3% to the MSME manufacturers exporting under any HS line.
3. Further, Government has advised the following modifications to the scheme:
a) Average interest rate: With effect from FY 2023-24, the banks which have priced
the loans covered under this scheme at an average interest rate of greater than Repo
Rate + 4% prior to subvention would be subjected to certain restrictions under the
scheme. Based on an assessment undertaken for FY 2023-24, Director General of
Foreign Trade (DGFT) will identify the banks which are in breach of the above
provision. Such banks shall be restricted from participating in the scheme till they
furnish an undertaking (in the format as enclosed in the Annex) to DGFT. Any further
breach as assessed by DGFT thereafter may lead to debarment from the scheme.
b) Cap on subvention amount: The annual net subvention amount has been already
capped at Rs 10 Cr per Importer-Exporter Code (IEC) in a given financial year and
the same has been communicated to the trade & industry and banks vide DGFT
Trade Notice No.05 dated May 25, 2023. Accordingly, all disbursement from April 1,
2023 shall be reckoned for this purpose.
4. All other provisions of the aforesaid circulars shall remain unchanged.
Yours faithfully
(Vaibhav Chaturvedi)
Chief General ManagerAnnex
UNDERTAKING
We, [Name of the Bank], hereby provide an undertaking to participate in the Interest
Equalisation Scheme for MSMEs and non-MSMEs, subject to the following terms and
conditions:
1. We understand that if our bank's average interest rate prior to subvention for
MSMES and non-MSMEs is higher than Repo Rate + 4%, we will be debarred under
the scheme.
2. We agree that we will keep the average interest rate within Repo Rate + 4% band
to continue to participate in the Interest Equalisation Scheme.
3. We hereby undertake to provide all necessary information and documents as
required by the Directorate General of Foreign Trade, Ministry of Commerce &
Industry for the purpose of monitoring and evaluation of our compliance with the
terms and conditions of the Interest Equalisation Scheme.
4. We also agree to adhere to any other guidelines or directives issued by the
Directorate General of Foreign Trade, Ministry of Commerce & Industry from time to
time.
We hereby certify that we have read and understood the above terms and conditions and
undertake to abide by them in letter and spirit.
Signature of authorized signatory:
Name of authorized signatory:
Designation:
Name of the Bank:
Date:
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