Export: Need to grow 16% year-on-year to meet $ 1 trillion export target: India’s Harsha Bangari EXIM

Established in 1982, the Export-Import Bank of India (India EXIM Bank) serves as an export credit agency specializing in the facilitation and promotion of international trade. In a freewheeling conversation, Harsha Bangari, MD, India EXIM Bank, discusses how the role of the bank has changed over the years, its fundraising plans, and how India can increase export growth.
Edited excerpts:

The Economic Times Digital (ET): How has EXIM Bank’s role 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 in the country and we seek to facilitate and finance exports from India. Thus, our objective remains the same: to encourage exports, to promote and facilitate exports in all possible forms. We started in 1982 with a very product centric approach where we used to provide export credits to companies. But for 40 years, we have tried to become a one-stop-shop for all companies that aspire to one day become international entities. We also provide advisory services as well as export capacity building loans to these companies.

ET: India’s merchandise exports are doing well this year. How can we strengthen it further?
HB: Yes, it is a good year for India’s merchandise exports. The Prime Minister talked 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 reached $ 197 billion. We are very optimistic about our ability to manage this target or if things stay good or even exceed it. Primary and resource-based products currently dominate Indian exports. Thus, India is more of an exporter of raw materials. We need to diversify our basket of exports. We do little in high tech exports.

If we look at our total exports of manufactured goods, high-tech exports are only about 10%. This is something that needs to be improved in order to further increase the number of exports. There is an opportunity in terms of participating in global value chains with China plus one giving India an advantage. But if we really want to increase our exports, we have to turn to high value-added exports. Service exports will continue to grow, but if we can increase our share of manufactured exports, especially in the high-tech sector, that would be a good trigger to increase overall exports.

ET: What are the gross non-performing assets (NPA) that the bank is currently seeing and what has been the impact of the pandemic? Could you give us a breakdown of bad debts by business segment?
HB: We have mapped and monitored our non-performing loans, particularly the slippage percentages from year to year. Today we are at a gross NPA level of 5.37%. In 2017-18, our gross NPA levels were above 10%.

The bank believes in aggressive provisioning. Thus, if we are talking about a provisioning coverage ratio greater than 95% in the bank, then our net bad debts are 0.26%. This reassures us a lot about all our solvency ratios and others. The other aspect concerns additional postcode. When we talk about the slippage ratio, in 2017-18 and 2018-19, we had a slippage ratio of more than 2%. It gradually went down and during FY21 we had a slip rate of 1.52%. This year, in the first quarter, we had a slip ratio of only 0.2%.

Regarding the sectoral breakdown of our non-performing loans, we have a well diversified loan portfolio and this reassures us in terms of concentration, especially when an account becomes NPA. Since we are an export credit agency and have significant exposure to the EPC (Engineering, Procurement and Construction) segment, our largest NPA is in this segment which is around Rs 1,456 crore. This would represent about 1% of my total loan book. So the highest exposure in a particular sector is less than 1.5% of my total loan portfolio. In terms of our gross CPAs, the construction and engineering sector, followed by oil and gas and metals and metals processing, are the three largest sectors where we have CPAs. But if we compare that with our loan portfolio, they are well manageable, and all of them combined will be less than 2% of my total portfolio.

ET: The government had embarked on a major capital injection exercise. How is this evolving and has it started to have a big impact on your lending activities?
HB: Being fully owned by the Indian government, we get a capital injection through a budget allocation. In FY22, we have a budget allocation of Rs 1,500 crore. We have already received Rs 750 crore. The capital injection will contribute to our growth. It will also help us take higher exposures as our single borrower and group borrower limits will be expanded. This allows us to maintain a comfortable capital / risk ratio.

ET: When we talk about a pandemic, what changes have you noticed in terms of export financing?
HB: When we talk about export credit, there is a direct correlation between exports and export credit; they are moving in a similar direction. Now export credit is increasing because exports are increasing. In addition, many mechanisms have intervened where Indian companies have become more aware not to incur too much debt. So if we see the total export credits as a percentage of the loan portfolio that has shrunk, it has almost dropped from 3.5% to 2.1%. The share of export credit from the banking sector in total credit has declined. But at the same time, exports have found different financing methods, so they are moving more towards a non-recourse type of financing.

ET: What are the potential elements that can help India increase its export earnings and create employment opportunities?
HB: One is electronics and electrical machines. We could benefit from the evolution of the global supply chain, especially after the outbreak of the pandemic, as well as the production incentive program for the manufacture of electronic components and semiconductors. We also import a lot of electronic and electric machines. So that could also be a way of balancing.

The other sector with export potential is defense equipment. We are one of the largest users of defense equipment, and we also have some very good companies that manufacture defense equipment. Then there is a lot of talk about solar cells and modules and again there is a PLI scheme for manufacturing solar cells and modules. This program will increase capacity and look promising for exports.

ET: What is the collective objective towards which States must strive for an increase in exports?
HB: There is the export target ($ 1,000 billion by FY26), which, if you try to translate it in terms of a growth requirement, is over 16%. We must therefore grow by 16% in one year to reach our export target. If we divide it into our states, there is a study where we see that 84% of India’s exports are made only by the top 10 states. There is a lot of concentration, which would mean that not all states contribute or really engage in export activity.

Now if there is an effort in terms of what we call the middle 10 states – for example Rajasthan, Madhya Pradesh, Delhi, Punjab, Kerala, Chhattisgarh – if those states can start exporting, then all the momentum for exports can be continued. Otherwise, we continue with Gujarat, Maharashtra, Tamil Nadu and Andhra Pradesh as the main exporting states. The 10 middle states should therefore also intervene.


ET: Can you tell us more about the Ubharte Sitaare program which aims to extend financial support to the MSME sector?
HB: Ubharte Sitaare means Rising Stars and the bank’s effort is to support and support businesses that may be small today but have the potential to expand into 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 all the support possible. This support could be done through a standard loan or by investing in these companies. We will manage or try to structure their financing needs in the form of instruments that would work for these companies. We have a very promising pipeline of over 100 companies.


ET: What are India EXIM Bank’s plans to raise funds for the years to come?
HB: We have a loan portfolio of approximately Rs 1,15,000 crore. Most of our financing is cross-border, so we have a portfolio of foreign currency loans of over 77 to 78%. And our domestic pound, that is, our Indian rupee pound, is barely 23%.

Today we need financing for two reasons: one is to support our growth, the second is to refinance our debt as it matures. Typically, if I’m talking about foreign currencies, on average we collect around $ 3 billion each year. We also have access to funding from multilateral agencies like the European Investment Bank or the ADB, or we could also make short-term loans.

For the current year, we don’t have too much debt maturity, so I don’t have the burden of repaying my previous loans. I expect to raise $ 2 billion in the current year.