Transactions between India and non-sanctioned Russian entities have now stabilised and are being settled in dollars or euros through a few Western correspondent banks, State Bank of India (SBI) managing director for international banking, technology and subsidiaries Ashwini Kumar Tewari tells Shritama Bose. SBI’s international book has of late been growing faster than its total loan book and the pandemic has given the lender a chance to spread its geographical risk, he said. Edited excerpts:
How is the trade and payments situation now between India, Russia and Ukraine?
Trade between India and those two countries is anyway quite small. In terms of imports, apart from defence, sunflower oil is the commodity that has been affected badly and we are seeing the impact on edible oil prices. Thirteen percent of India’s tea exports are to Russia, which might be impacted, but problems in the neighbourhood offer an opportunity to balance it. Although crude imports from Russia are only about 1-2%, there has been a price impact globally. India has been affected by that as also on the fertiliser imports front. Payment transactions with non-sanctioned Russian entities have now stabilised and are being settled in dollars or euros through a few Western correspondent banks. There is now a layer of extra security involved, what we call enhanced due diligence (EDD), which is done.
So there must be an impact on volumes and costs?
Of course. The increased due diligence is causing delays as is the need to route transactions through multiple banks. It was much easier to deal with SberBank because it has presence in Delhi. Volumes have certainly been affected. One of the reasons is that diamond miner Alrosa has been sanctioned. It accounted for a sizeable portion of rough diamonds import to India. Some ports are also under sanctions, because of which shipping companies are reluctant to accept shipments. Obviously, all of these are leading to cost escalations. The EDD for each transaction and additional documentation for each leg of the transaction are also adding to the cost.
You have just raised a $500-million loan. What’s the strategy behind that and could we see more such transactions this year?
The loan is linked exclusively to the international book. We want to be diversified not just in terms of the instruments we use, but also in terms of the geographies where we are present. Swap rates were favourable last year and we raised money in the dollar/rupee market, but that isn’t the case any more. Also, as rates rise, spreads also rise, so it is good to raise early. The money we have raised is mostly for refinancing. Our international book size is rising, even as rates are also rising. We have a $69-billion balance sheet and a major part of the book is term loans and trade finance. The good thing is that it is easier to pass on rate increases in the international market than in the domestic market because of competition.
With Covid and now the geopolitical challenge, have you seen any issues in the international business?
When the pandemic broke out, there was an initial challenge on logistics. We had to comply with local rules in different markets. For instance, Shanghai did not allow any offices to be open. The US, on the other hand, classified banking as an essential service, and allowed banks to remain open. We introduced a VPN system and distributed our teams. We looked at setting up disaster recovery arrangements in alternative locations. After the first two-three months, things reopened in the US and Europe. Business picked up well, with pent-up demand and the government stimulus helping in those markets. Barring aviation and entertainment, most sectors did well. In FY21 (Q3) and FY22 (Q3), the international book (advances portfolio) posted a greater growth than the bank – about 15% or so. For us, the pandemic emerged as a chance to achieve a good geographical distribution of risk.
Any asset quality issues?
Not really. Our net NPA (non-performing assets) in the international book is lower than 1%. There was one account in the West Asia where we saw some stress. However, in international markets, even if we see stress, there is the flexibility to sell down the loans in the secondary market.