The Economic Times Digital (ET): How has the role of EXIM Bank evolved over the years and what shape would you like to give it in a world hit by a pandemic?
Harsha Bangari (HB): India EXIM Bank is an export credit agency of the country and we look towards facilitating and financing India’s exports. So, our aim remains the same: to encourage exports, promote and facilitate exports in whichever form we can. We started in 1982 with a very product-centric approach where we used to provide export credit to the companies. But over 40 years, we have tried to become a one-stop-shop for all companies that aspire to become international entities one day. We also provide advisory services as well as export capability creation loans to these companies.
ET: India’s merchandise exports are doing well this year. How can we strengthen it further?
HB: Yes, this is a good year for India’s merchandise exports. The Prime Minister has spoken about a target of $400 billion for the current year and if we see the real statistics for the last six months, we have already achieved $197 billion. We are very optimistic that we will be able to manage this target or if things remain good, even surpass it. Primary and resource-based products currently dominate India’s exports. So, India is more of a commodity exporter. We need to diversify our export basket. We do little in high-tech exports.
India needs to do more high-tech exports to achieve higher numbers: India EXIM’s Harsha Bangari
Exports have been showing a consistent upward trajectory since the start of this fiscal. While the target of $400 billion in exports has been the aim for FY 22, Harsha Bangari, MD, India EXIM Bank says that a lot of sectors still remain largely untapped. Watch this video for more.
If we look at our total manufactured exports, high-tech exports only comprise around 10%. This is something that needs to be improved in order to take the export numbers even higher. There is an opportunity in terms of our participation in the global value chains with China-plus-one, which gives an advantage to India. But if we really want to increase our exports, we should look at high value-added exports. Services exports will continue to grow, but if we can increase our share of manufactured exports, especially in the high-tech sector, it would be a good trigger to increase overall exports.
ET: What are the gross non-performing assets (NPAs) the bank is seeing currently and what has been the impact of the pandemic? Would you be able to give us a breakup of the bad loans across business segments?
HB: We have been mapping and monitoring our non-performing loans, especially the slippage percentages year-on-year. Today, we are at a gross NPA level of 5.37%. In 2017-18, our gross NPA levels were over 10%.
The bank believes in aggressive provisioning. So, if we are talking about a provisioning coverage ratio of over 95% in the bank, then our net non-performing loans are 0.26%. This gives us a lot of comfort in terms of all our solvency and other ratios. The other aspect is in terms of the incremental NPAs. When we talk about slippage ratios, in 2017-18 and 2018-19, we had a slippage ratio of over 2%. This has progressively come down and in FY21 we had a slippage ratio of 1.52%. This year, in the first quarter, we had a slippage ratio of only 0.2%.
On the industry-wise breakup in terms of our non-performing loans, we have a well-diversified loan book and that gives us comfort in terms of concentration, especially when an account becomes NPA. Given that we are an export credit agency and we have significant exposure to the EPC (engineering, procurement and construction) segment, our largest NPA sits in that segment, which is around Rs 1,456 crore. This would be around 1% of my total loan book. So, the highest exposure in a particular sector is less than 1.5% of my total loan book. In terms of our gross NPAs, the construction and engineering sector, followed by oil & gas, and metal & metal processing, are the three largest sectors where we have NPAs. But if we compare that with our loan book, they are well manageable, and all combined will be less than 2% of my total book.
ET: The government had undertaken a large capital infusion exercise. How is that progressing and has it started making a material impact in your lending activities?
HB: Being wholly owned by the Government of India, we get capital infusion by way of a budgetary allocation. In FY22, we have a budgetary allocation of Rs 1,500 crore. We have already received Rs 750 crore. Capital infusion will help in our growth. It also will help us in taking higher exposures because our single borrower and group borrower limits will get expanded. This enables us to maintain a comfortable capital to risk asset ratio.
ET: When we talk of the pandemic, what are the changes you have seen as far as export financing is concerned?
HB: When we talk about export credit, there is a direct correlation between exports and export credit; they move in a similar direction. Now export credit is going up because exports are up. Also, a lot of mechanisms have stepped in where Indian companies have become more conscious about not contracting too much debt. So, if we see the total export credit as a percentage of the loan book that has declined, it has almost declined from 3.5% to 2.1%. Banking sector export credit as a share of total credit has come down. But at the same time, exports have found different ways of financing, so it is moving more towards a non-recourse type of financing.
ET: What are the potential items that can help India increase export revenues as well as create employment opportunities?
HB: One is electronics and electrical machinery. We could take advantage of the shifting global supply chain, especially after the outbreak of the pandemic and also the production linked incentive scheme for manufacturing of electronic components and semiconductors. We also import a lot of electronics and electrical machinery. So, this could also be one way of balancing out.
The other sector that has potential for exports is defence equipment. We are one of the largest users of defence equipment and we also have very good companies that manufacture defence equipment. Then there is a lot of discussion on solar cells and modules and again there is a PLI scheme for manufacturing of solar cells and modules. This scheme will increase capacity and look promising for exports.
ET: What is the collective goal that States should work towards for higher exports?
HB: There is the export target ($1 trillion by FY26), which if you try to translate in terms of the growth requirement is over 16%. So, we need to grow at 16% year-on-year to achieve our export target. If we divide it into our states, there is a study where we see that 84% of India’s exports are being done only by the top 10 states. There is a lot of concentration which would signify that all the states are not really contributing or engaging in export activity.
Now, if there is an effort in terms of what we call as the middle 10 states — for example Rajasthan, Madhya Pradesh, Delhi, Punjab, Kerala, Chhattisgarh — if these states can start exporting, then the entire impetus to the exports can be more. Otherwise, we continue with Gujarat, Maharashtra, Tamil Nadu and Andhra Pradesh as the top exporting states. So, there would be a need for the middle 10 states also to step in.
ET: Could you tell us more about the Ubharte Sitaare programme that aims to extend financial support to the MSME sector?
HB: Ubharte Sitaare means rising stars and the endeavour of the bank is to support and handhold companies that may be small today but have the potential to grow in the international markets. We have also set up an Ubharte Sitaare fund to provide equity to these companies. The idea is to identify these companies and give them whatever support we can. This support could be through a debt standard loan or by investing in these companies. We will be managing or trying to structure their funding requirement in the form of instruments that would work for these companies. We have got a very promising pipeline of over 100 companies.
ET: What are the plans of India EXIM Bank for raising funds for the coming years?
HB: We have a loan book of around Rs 1,15,000 crore. Most of our finance is cross-border, so we have a foreign currency loan book of over 77-78%. And our domestic book, that is our Indian rupee book, is just barely 23%.
Now, we need financing for two reasons — one is to support our growth, the second is to refinance our maturing debt. Typically, if I talk about foreign currency, we raise, on an average, around $3 billion every year. We also have access to multilateral agency funding like European Investment Bank or ADB, or we could also do short-term loans.
For the current year, we do not have too much debt maturity, so I do not have the burden of repayment of my earlier borrowings. I am expecting to raise $2 billion in the current year.