Addressing the concerns of the small and medium scale pharma industry, the Reserve Bank India (RBI) has advised the banks to adopt a 'flexible and liberal approach’ in respect of exporters and make sure that assessment of export credit should be `need based’ and not directly linked to the availability of collateral security.

“In terms of paragraph 8.2.2 of the master circular on rupees/foreign currency export credit and customer service to exporters in July 2009, banks have been advised to adopt a flexible approach in respect of exporters, who for genuine reasons are unable to bring in corresponding additional contribution in respect of higher credit limits sought for specific orders,” the RBI said.

The RBI clarified this to the Commerce Ministry which took up the concerns of the SME pharma industry with the apex bank after the export problems of the sector were raised with the ministry through Pharmexcil by its COA member Nipun Jain. The RBI also assured to look into the specific complaints, if forwarded, about the denial of credits to the SME exporters. The SME Pharma Industries Confederation (SPIC) had also taken up the matter with the Commerce Ministry after some firms were denied credits some time back.

“Exports on DA basis along with ECGC buyer wise policy should be treated the same way as FBN and be kept outside exposure norms. SME is feeling the pinch and are not able to increase their exports because of the above factor. More over, banks insist on extra collateral security in case extra FBP is to be considered,” according to the complaint forwarded by the ministry.

“Further, vide para 8.3.2(ii), banks have been advised that assessment of export credit should be need based and not directly linked to the availability of collateral security. As long as the requirement of credit limit is justified on the basis of exporter’s performance and track record, the credit should not be denied merely on the grounds of non-availability of collateral security,” the RBI said in its reply to the Commerce Ministry.

On the complaint that some PSU banks denied credit in the name of high risk category and volatile conditions in the case of LC discounting, the Apex bank assured to take up the specific cases, if any, with the respective banks. About the demand for raising the total exposure limit from Rs 10 crore to Rs 50 crore, the RBI said the matter would be examined and would respond separately. Likewise, it also would look into the discontinuance of Asian currency dollar for trade among SAARC countries.

The Commerce Ministry had also forwarded the demand by the SME sector for cheaper loans to the SME units to upgrade their facilities and increase production capacity and energy machines. The RBI said it would examine the matter first interdepartmentally and would get back.

“In the developing countries, the small scale units are not able to export more due to non- tariff measures adopted by Indian public sector banks because of exposure caps. The SME sector units have limited capital base which is mainly invested in working capital, plant, machinery and infrastructure. The public sector banks have a policy of exposure limits of 1:4. In this, the banks include exports under L/C DA, L/C DP and DA exports under ECGC cover and term loan facilities’ even though they are not a credit as the exports have been effected and the payment would come in due course. This practice by public sector banks is curbing the growth in exports of SME pharma units in India in spite of the assurance of the government in the parliament ( ) that there will be no shortage of refinancing funds for exports,” according to an earlier representation by SPIC.