A source familiar with the matter said the SBI did not want to increase its exposure to Bangladesh.
New Delhi:
India’s top lender State Bank has asked exporters to avoid clearing transactions with Bangladesh in dollars and other major currencies as it appears to limit the extent of the country’s declining reserves. Dhaka, according to an internal document and a source.
Bangladesh’s $416 billion economy is grappling with soaring food and energy prices as the Russia-Ukraine conflict widens its current account deficit and shrinks foreign exchange forcing the country to turn to other countries. lending institutions such as the International Monetary Fund (IMF).
“The country is facing a shortage of foreign currency due to a higher import bill and the recent weakness of the Bangladeshi taka against the dollar,” SBI said in an August 24 letter. sent to its affiliates and informed by Reuters.
The letter and its contents have not been previously reported.
SBI did not immediately respond to an e-mail seeking comment.
The bank said the decision not to increase exposure to the dollar and other foreign currencies in its relationship with Bangladesh was driven by the current economic situation and the neighboring country’s foreign currency shortage.
“However, the exchange rate in Indian rupees (INR) and taka will continue,” it added.
Bangladesh’s foreign exchange reserves fell to $37 billion on Friday from $48 billion a year earlier, according to data from the central bank, which supplies imports for just five months.
Finance ministry officials said Bangladesh is seeking a $4.5 billion loan from the IMF, exceeding the maximum entitlement of $1 billion under the IMF’s Resilience and Sustainability Trust.
A source familiar with the matter said the SBI did not want to increase its exposure to Bangladesh.
“We have about $500 million for Bangladesh and have decided not to grow further, and maybe even reduce it when necessary, given the news surrounding the economy,” the source added, speaking on condition of anonymity. .
Bangladesh is just one of India’s neighbors facing financial difficulties.
The island nation of Sri Lanka is grappling with a financial crisis as its central bank reserves stand at just $1.7 billion at a time of hyperinflation and severe food and fuel shortages. sparked protests and changed government.
And Pakistan’s central bank reserves of $8.6 billion are only enough for about a month of imports.
TRADE LOCAL CURRENCY
Commerce Minister Tipu Munshi said Bangladesh wanted to cut its dependence on the dollar last week, and it sees no problem in dealing in local currency.
Speaking at an event in Dhaka, he was responding to a question about the growing focus on local currency trade and added that the finance ministry was looking at ways to do this.
However, the chief executive of Bangladesh’s central bank, Serajul Islam, told Reuters that “no such decision has been made yet” regarding the local currency transaction with India.
Last week, the central bank of Bangladesh allowed banks to conduct transactions in the Chinese yuan, to enable transactions with China.
Last month, ratings agency Standard & Poors confirmed its stable outlook rating for Bangladesh, saying it expected the country’s external position to stabilize within a year.
However, the agency said it may downgrade Bangladesh if net external debt or financial indicators deteriorate further as higher commodity prices and strong imports could weaken the taka and withdraw. depleted foreign exchange reserves.
The agency added: “Despite moderate net debt, the interest burden on the Bangladeshi government is substantial.
“Its foreign currency liabilities, although mainly borrowed from multilateral and bilateral sources, are subject to exchange rate risk.”
However, a textile exporter, said banks and importers in Bangladesh are not willing to deal in rupees, and prefer the taka currency instead.
In addition, India has yet to clarify whether exports denominated in rupees will receive the same benefits as the dollar, he said.
“SBI’s circular is very alarming, as they said no exposure to Bangladeshi exports,” the exporter added.
“Bangladesh is a major trading partner and if a leading bank like SBI is not exposed, how will trade grow? It will go down.”
India’s exports to Bangladesh grew 17.5% to $4.94 billion in the April-July period, or the first four months of the fiscal year-to-March 31, 2023, while imports increased by around 11 % at $580.7 million, government data shows.
