EXCLUSIVE India’s biggest lender asks exporters to trade with Bangladesh in rupee, taka – Reuters | Jewelry Dukan

NEW DELHI, Sept 19 (Reuters) – Leading lender State Bank of India (SBI.NS) has asked exporters not to deal with Bangladesh in dollars and other major currencies as it seeks to contain risk from Dhaka’s falling reserves , according to an internal document and source.

Bangladesh’s $416 billion economy is struggling with soaring energy and food prices as the Russia-Ukraine conflict widens its current account deficit and dwindling foreign exchange forces it to turn to global lenders like the International Monetary Fund (IMF). Continue reading

“The country has been facing a shortage of foreign exchange recently due to higher import bills and the weakness of the Bangladeshi taka against the dollar,” the SBI said in an Aug. 24 letter sent to its branches and viewed by Reuters.

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The letter and its contents have not yet been reported.

The SBI did not immediately respond to an email seeking comment.

The decision not to increase exposure to the dollar and other foreign currencies related to Bangladesh was due to the current economic situation and the neighboring country’s foreign exchange shortages, the bank said in its circular.

“However, exposure to Indian rupee (INR) and taka remains,” it added.

Bangladesh’s foreign exchange reserves fell to $37 billion as of Friday, from $48 billion a year earlier, according to data from the central bank, which provides import coverage for just five months.

Treasury officials said Bangladesh is seeking a $4.5 billion loan from the IMF, in excess of its $1 billion maximum entitlement under the IMF Resilience and Sustainability Trust. Continue reading

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

“We have an approximate exposure of $500 million in Bangladesh and have made the decision not to aggressively expand it any further and maybe even scale it down as needed with the news surrounding the economy,” added the source, who is on condition who spoke anonymity .

Bangladesh is just one of India’s financially troubled neighbors.

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 runaway inflation and severe food and fuel shortages that sparked protests and a change of government. Continue reading

And Pakistan’s central bank reserves of $8.6 billion are enough for just a month’s worth of imports. Continue reading

TRADE IN LOCAL CURRENCY

Bangladesh wants to reduce dependence on the dollar, Trade Minister Tipu Munshi said last week, and sees no problem in trading local currencies.

At an event in Dhaka, he responded to a question about the increasing focus on local currency trading, adding that the Ministry of Finance was looking into ways to do so.

However, Executive Director of the Central Bank of Bangladesh Serajul Islam told Reuters: “No such decision has been taken yet” regarding local currency trading with India.

Last week, the central bank of Bangladesh cleared banks for transactions in Chinese yuan to facilitate trade with China.

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

However, the agency said it could downgrade Bangladesh’s ratings if net external debt or financing metrics continue to deteriorate, as higher commodity prices and strong imports could help weaken the taka and erode foreign exchange reserves.

“Despite the modest net debt, the government of Bangladesh’s interest burden is significant,” the agency added.

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

An Indian textile exporter, who wished to remain anonymous, said banks and importers in Bangladesh were unwilling to trade in rupees, preferring the taka currency instead.

Also, India has not yet clarified whether rupee-denominated exports will receive the same benefits as those denominated in dollars, he said.

“SBI’s circular is very alarming as they have said they will not deal with exports from Bangladesh,” the exporter added.

“Bangladesh is an important trading partner and if a leading bank like SBI doesn’t get involved, how will trade grow? He will go back.”

India’s exports to Bangladesh rose 17.5% to US$4.94 billion in the April-July period, or the first four months of the financial year ended March 31, 2023, while imports rose about 11% to US$580, according to government data $.7 million rose.

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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; Adaptation by Clarence Fernandez

Our standards: The Thomson Reuters Trust Principles.

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