All that Glitters is not Gold Card Scheme

RBI has recently issued an advisory that Gold Card scheme as contained in “Master Circular on Rupee / Foreign Currency Export Credit and Customer Service To Exporters dated July 01, 2015” needs to strictly implemented by the banks. This advisory was issued by RBI upon receiving representations from the industry that banks are not extending benefits of Gold Card Scheme to eligible exporters.

Export plays an important role in a developing economy like India. Indian Government lays special emphasis on the promotion of export and takes different initiatives from time to time in this direction.

Gold Card Scheme was introduced by Reserve Bank of India (RBI) in the year of 2004 with the objective of promotion of export by simplifying the access of credit to the exporters and borrower friendly terms of credit.

In order to understand Gold Card Scheme, we need to understand the salient features of this Scheme, which are enumerated below:

Eligibility

Exporters including those in small and medium sectors with good track record would be eligible for issue of Gold Card by the banks.

Preferential Treatment

Gold Card holder exporters, depending on their track record and credit worthiness, will be granted better terms of credit including rates of interest than those extended to other exporters by the banks. It is to be noted that the applicable rate of interest to be charged under the Gold Card Scheme will not be more than the general rate for export credit in the respective bank.

Applications for credit (including sanction and renewal) will be processed at norms simpler and under a process faster than for other exporters.

The charges schedule and fee-structure in respect of services provided by banks to exporters under the Scheme will be relatively lower than those provided to other exporters.

Gold Card holders would be given preference in the matter of granting of packing credit in foreign currency.

'In-principle' limits will be sanctioned for a period of 3 years with a provision for automatic renewal subject to fulfilment of the terms and conditions of sanction.

Catering of contingent needs

A stand-by limit of not less than 20 per cent of the assessed limit may be additionally made available to facilitate urgent credit needs for executing sudden orders. In the case of exporters of seasonal commodities, the peak and off-peak levels may be appropriately specified.

In case of unanticipated export orders, norms for inventory may be relaxed, taking into account the size and nature of the export order.

Gold Card holders, on the basis of their track record of timely realization of export bills, will be considered for issuance of foreign currency credit cards for meeting urgent payment obligations, etc.

Sans Collateral

Banks would consider waiver of collaterals and exemption from Export Credit Guarantee Corporation of India (ECGC) guarantee schemes on the basis of Gold Card holder's creditworthiness and track record.

Timelines

Fresh applications / renewal of limits and adhoc limits requests from Gold Card holders would be processed quickly by banks within 25 days / 15 days and 7 days for fresh applications / renewal of limits and ad hoc limits, respectively.

Excluded

The scheme will not be applicable for exporters blacklisted by ECGC or having overdue bills in excess of 10% of the previous year’s turnover.

In a nutshell, this scheme incentivise good behaviour of an exporter. The only concern with this scheme is that the scheme in the current form is high level. Thus, it gives lots of discretionary scope to the banks which needs to be narrowed down to bring more clarity. Nonetheless, the scheme has a very earnest objective and similar scheme should be extended to other areas as well particularly for micro, small and medium enterprises.