The President/CEO/Country Head,

All Banks,

Dear Sirs / Madam,

Export Finance Scheme - Modifications in procedure for refinance

Please refer to the instructions as contained in our SME & MFD Circular No. 03 dated 31st July, 2007 on the captioned subject.

2. It has come to our notice that some of the exporters are not using their funds obtained from their respective banks at 7.5% for the purpose of execution of the export order in violation of the instructions of the State Bank under EFS as contained in Para 3 of Application/Undertaking for obtaining loan under EFS. It is also reiterated here that in terms of BPD Circular Letter No. 14 of July 24, 2006 banks have been advised to ensure utilization of funds for the purposes the funds are disbursed. Under these instructions banks are also required to ensure effective internal monitoring system to prevent diversion of funds for the purposes other than for which they have been availed. This practice of the exporters to gain interest arbitrage may attract imposition of fine; exporters are thus advised to avoid / refrain from the same. Banks are also advised to ensure that funds obtained under EFS are not utilized for purposes other than execution of export orders. However, we shall appreciate if these instructions are not used as a reason for denying export finance facility at 7.5% for transactions otherwise eligible under EFS.