Exclusive: India’s top lender asks exporters to trade with Bangladesh in rupee, taka

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NEW DELHI, Sept 19 (Reuters) – Top lender State Bank of India (SBI.NS) According to an internal document and a source, it has asked exporters to avoid deals with Bangladesh in dollar and other major currencies as it seeks to mitigate the risk of Dhaka’s depleting reserves.

Bangladesh’s $416 billion economy is grappling with rising energy and food prices as the Russia-Ukraine conflict widens its current account deficit, and dwindling foreign exchange makes it turn to global lenders such as the International Monetary Fund (IMF). forces to. read more

“The country is facing a foreign exchange crunch due to high import bills and the weakness of the Bangladeshi taka against the dollar in recent days,” SBI said in a letter sent to its branches on August 24 and seen by Reuters.

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The letter and its contents have not been previously reported.

SBI did not immediately respond to an e-mail seeking comment.

The bank said in its circular that the decision to not increase exposure to the dollar and other foreign currencies with respect to Bangladesh stems from the current economic situation and the foreign exchange deficit of the neighboring country.

“However, exposure in Indian Rupee (INR) and Taka will continue,” it added.

Bangladesh’s foreign exchange reserves fell to $37 billion as of Friday from $48 billion a year ago, according to central bank data, providing just five months of import cover.

Finance ministry officials have said that Bangladesh is seeking a loan of $4.5 billion from the IMF, which is more than the maximum eligibility of $1 billion under the IMF Resilience and Sustainability Trust. read more

A source familiar with the matter said SBI does not want to increase its exposure in Bangladesh.

“We have about $500 million at risk for Bangladesh and we have decided not to increase it more aggressively, and maybe even reduce it as needed,” the source said on condition of anonymity. ,

Bangladesh is one of India’s neighbors in financial trouble.

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 galloping inflation and severe shortages of food and fuel, which sparked protests and a change in government. read more

And Pakistan’s central bank’s reserves of $8.6 billion are enough for just one month’s imports. read more

trading in local currency

Bangladesh wants to reduce its dependence on the dollar, Commerce Minister Tipu Munshi said last week, and does not see any problem with transactions in local currencies.

Speaking at an event in Dhaka, he was responding to a question on the increasing focus on local currency trading, and said the finance ministry was looking at ways to do so.

However, Serajul Islam, the executive director of Bangladesh’s central bank, told Reuters, “No such decision has been taken yet,” referring to trade in local currencies with India.

Last week, Bangladesh’s central bank freed banks to conduct transactions in Chinese yuan, to enable trade with China.

Last month, rating agency Standard & Poor’s reaffirmed its stable outlook rating for Bangladesh, saying it expects its external position to stabilize within a year.

However, the agency said it could downgrade the rating on Bangladesh if net foreign debt or financing metrics worsen as higher commodity prices and stronger imports could weaken the taka and deplete foreign exchange reserves. .

“Despite its moderate net debt position, the interest burden on the Bangladesh government remains substantial,” the agency said.

“Its foreign currency-denominated debt, although borrowed primarily from multilateral and bilateral sources, is subject to exchange rate risk.”

An Indian textile exporter, who asked not to be identified, said banks and importers in Bangladesh were unwilling to trade in the rupee, and instead preferred the taka currency.

Also, India is yet to clarify whether exports denominated in rupee will get the same benefit as dollar, he said.

“The SBI circular is very dangerous as they have asked not to take risk on Bangladesh’s exports,” the exporter said.

“Bangladesh is a major trading partner and if a major bank like SBI doesn’t take exposure, how will business grow? It’s going to go down.”

India’s exports to Bangladesh increased by 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 rose nearly 11% to $580.7 million, government data showed. .

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Reporting by Nidhi Verma and Nupur Anand; Additional reporting by Manoj Kumar and Rajendra Jadhav in India and Ruma Paul in Bangladesh; Editing by Clarence Fernandez

Our Standards: Thomson Reuters Trust Principals.

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