Modified Norms of Interest Equalization Scheme for MSME exporters

Modified Norms of Interest Equalization Scheme for MSME exporters

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Modified Norms of Interest Equalization Scheme for MSME Exporters

The Reserve Bank of India (RBI) has extended the interest equalization scheme for pre and post-shipment rupee credit for MSME exporters till March 2024 with the objective of boosting outbound shipments. RBI on March 8, 2022, also issued modified norms on Interest Equalization Scheme for export credit after the extension of the scheme. The present article briefs the modified norms of the Interest Equalization Scheme.

Extension of Interest Equalization Scheme

The RBI vide a Notification dated March 8, 2022, has informed banks that the Government has approved the extension of the Interest Equalization Scheme for Pre and Post Shipment Rupee Export Credit Scheme up to March 31, 2024, or till further review, whichever is earlier.

The extension takes effect from 01-10- 2021 and ends on 31-03- 2024. Revised interest equalization rates under Scheme will now be 3 % for MSME manufacturer exporters exporting under any HS lines, and 2 % for exporters exporting under 410 HS lines.

Interest Equalization Scheme for Pre and Post-Shipment Export Credit

The Interest Equalization Scheme (IES) was first implemented on 1st April 2015 to provide pre and post-shipment export credit to exporters in rupees. An eligible exporter has to submit a certification of the external auditor to the concerned bank to claim this benefit. Banks provide Interest Equalization Scheme benefit to the eligible exporters and claim a reimbursement of the same from the Reserve Bank of India based on the external auditor certification furnished by the exporter. The scheme helps the identified export sectors to be internationally competitive and to achieve a higher level of export performance.

Interest Subsidy Scheme Extension

In April 2021, the RBI first extended the scheme until June and later till September 2021. It revised the interest equalization rates under the scheme to 2% and 3% for specified categories of MSME manufacturer exporters.

Now, the government approved extending the ‘Interest Equalization Scheme for Pre and Post Shipment Rupee Export Credit’ until 31 March 31, 2024, or until further review, whichever is earlier. The extension is effective from 1 October 2021 and ends on 31 March 2024.

In April last year, the scheme was first extended till June end and later till September 2021.

Know more about the Starting an Export Business in India

Modified Norms on Interest Equalization Scheme

Modified norms on Interest Equalization Scheme (IES) is explained in detail below:

Revised interest equalization rates

At the time of the introduction of the scheme the rate of subvention was fixed at 3% and the rates for MSME sectors have been increased to 5% with effect from 2nd November 2018. The rate for a large manufacturer and Merchant exporters remains at 3%.

Revised interest equalization rates under the scheme will now be 3%  for MSME manufacturer exporters exporting under any HS lines and 2%  for exporting under any HS lines and two percent for manufacturer exporters and merchant exporters exporting under 410 HS lines.

Have a look at the below table for a better understanding of the eligible category and revised equalization rate of the Interest Equalization Scheme:

Sl.No Export Items Eligible Category Rate of Equalization Revised Rate of Equalization
1 The 416 four-digit tariff lines listed in the scheme Large sector manufactures from 01.02.2015 and Merchant exporters from 02.01.2019 3% per annum 2%
2 All tariff lines MSME units Manufacture 5% per annum 3%

Eligible Industries for Interest Equalization Scheme

The interest equalization scheme covers mostly labor-intensive and employment-generating sectors.

As per the modifications made by the government to the scheme, the telecom instrument sector having six HS (Harmonized System) lines shall be out of the purview of the plan, except for MSME manufacturer exporters.

The RBI notification further said the extended Interest Equalization Scheme for MSME exporters  will not be available to those beneficiaries, who are availing the benefit under any production linked incentive (PLI) scheme of the government

Operational Procedure for Claiming Reimbursement

According to the Interest Equalization Scheme, the banks will identify the eligible exporters and credit the beneficiaries’ accounts with the eligible amount of interest equalization. After that, concerned banks will reduce the interest rate charged to the eligible exporters on advances by the rate of interest equalization provided by the Government.

As per the modified norms, Banks will necessarily furnish the following details while issuing approval to the exporter:

  • The prevailing interest rate
  • The interest subvention being provided
  • The net rate being charged to each exporter

This is to ensure transparency and greater accountability in the operation of the scheme,

From October 1, 2021, to March 31, 2022, banks shall identify  the eligible exporters as per the scheme, credit their accounts with the eligible amount of interest equalization and submit a sector-wise consolidated reimbursement claim for the said period to the RBI by April 30, 2022,

With effect from April 1, 2022, banks shall reduce the interest rate charged to the eligible exporters upfront as per the guidelines and submit the claims in original within 15 days from the end of the respective month, with the bank’s seal, and signed by the authorized person, in the prescribed format.

Modified Norms of Interest Equalization Scheme for MSME exporters

Consequently, the extent of operational instructions issued by the Reserve Bank of India under the scheme will continue to remain in force Upto March 31, 2024.

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Post by Renu Suresh

Renu is experience content writer specialised in compliances and company rules.