The Reserve Bank of India (RBI)'s move to introduce a dollar-rupee swap facility to support banks' incremental pre-shipment export credit in foreign currency (PCFC) is set to boost export credit.
On Monday, RBI had said banks would have the option to access rupee refinance to the extent of the swap with RBI through a special export credit refinance facility.
The facility would be available from January 21 to June 28 for a fixed tenor of three/six months.
"It is a good and proactive move by RBI to open this window. It will enable exporters to get dollar finance at competitive costs. This would make exports competitive and ensure bankers start lending more to exporters at a cheaper rate. Assured liquidity is also there for exporters," said N S Venkatesh, chief general manager and head of treasury, IDBI Bank.
For any particular month, the maximum US dollars banks would be eligible to avail of through swaps from RBI would be equal to the incremental PCFC disbursed, with reference to a base date (November 30), subject to a limit, RBI said.
It added the limits would be communicated to eligible individual banks separately and reviewed periodically, based on actual utilisation, as well as other relevant factors. The overall cap for the banking system was $6.5 billion, RBI said.
According to S Srinivasaraghavan, executive vice-president and head of treasury, Dhanlaxmi Bank, in time, this would help control the movement of the rupee.
The Street expects RBI to cut the repo rate at the third quarter review of monetary policy. IndusInd Bank's Moses Harding said in the absence of a rate cut, the move would support the rupee and allow correction (or unwinding of excessive gains) in bond/equity markets.