Indo-African export fund fails to impress banks

Indian commercial banks are reluctant to participate in the proposed Indo-African export fund, owing to a limited pool of long-term resources for such programmes.

The Union government had thought of the fund to boost exports, especially project exports, to that continent. The finance ministry had sought views from banks through the Indian Banks Association (IBA), on the proposal. IBA had also consulted the Export-Import Bank of India.

The government had suggested it contribute 25 per cent, while banks contributed the other 75 per cent for the fund. The proposed size is not clear.

An IBA official said most foreign currency resources of banks were short-term in nature, not suitable for long-term financing. Indian banks invariably face a shortage of foreign currency in meeting exporters’ demand.

Beside the issue of long-term funds, banks also have to look into aspects such as regulatory approval, asset liability management matters and Basel-III stipulations before venturing into such funds, said an executive with State Bank of India.

The government has set a target of raising the volume of India-Africa trade from the current $45 billion to $70 billion by 2015. According to the Confederation of Indian Industry, trade between India and sub-Saharan Africa grew 400 per cent between 2005 and 2010. The trade was $12.51 billion in April-July 2010, 40 per cent higher than the corresponding period in 2009-10.

The government and industry associations like CII are working on plans to enable India to break the traditional dependence of Africa on Western economies for technology, products and services.

With support from an earmarked corpus, project exporters could enter niche markets and create a brand image for ‘Appropriate, affordable & adaptable’ technologies from India, is the hope.

Target sectors include agriculture & agro processing, infrastructure, construction, railway infrastructure & rolling stock, and roads, waterways, ports & airports.

Source: Business Standard