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Reduced credit rate to benefit MSME export sector – FIEO
06
May '09
Mr A Sakthivel, President, Federation of Indian Export Organisations (FIEO) while commenting on the drop in LIBOR to the present low of less than 1% (for 3 months) stated that this may reduce lending costs to the MSME export sector which are dependent on MIBOR (Mumbai Inter Bank Offered Rate) / MIFOR (Mumbai Inter Bank Foreign Currency Rates).

The FIEO Chief elaborated that credit can be offered at reduced rates to the MSME export sector provided that the “spreads” of the banks in terms of operating costs are kept at its minimum. According to a study, about 25% of the PLR is contributed by operating costs (3.25%) and about 50% through cost of deposits (6.25%).

If these two factors are taken care of the “spreads” of Banks would reduce and credit cost would be more competitive vis-à-vis the international market [Return on assets and provision for NPA's together contribute to a fourth of the PLR].

President, FIEO opined that with RBI closing the second reverse repo window for accepting surplus funds from banks, banks may be forced to offload Rs.40,000 to Rs.50,000 crores of excess lendable liquidity. The cost of this lendable credit could be brought down and be made comparable to levels in the international market by reducing domestic overhead costs.

Federation of Indian Export Organisations

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