SBI asks its branches to avoid dollar exposure on Bangladesh | The Financial Express

SBI asks its branches to avoid dollar exposure on Bangladesh

This will effectively mean that domestic exporters and importers who have business links with the country’s top lender will be discouraged from settling trade with Bangladesh in the dollar or other major global currencies.

SBI asks its branches to avoid dollar exposure on Bangladesh
The SBI move comes after the Reserve Bank of India in July notified the new mechanism to settle international trade in rupees, to reduce the depreciation of the rupee against the dollar.

State Bank of India (SBI) has asked its branches to avoid taking major foreign currency exposure on Bangladesh until further instructions, in light of a forex crisis there. This will effectively mean that domestic exporters and importers who have business links with the country’s top lender will be discouraged from settling trade with Bangladesh in the dollar or other major global currencies. Exporters, however, fear that any such move could adversely affect the immediate trade flow between the two countries.

In a recent circular, reviewed by FE, the country’s largest lender, however, said “exposures in the rupee and taka will continue as hitherto”. Bangladesh emerged as India’s fourth-largest export destination in FY22, with despatches in excess of $16 billion. The bank said Bangladesh is “facing shortage of foreign currency due to higher import bills and weakness of Bangladeshi taka against the dollar in recent times”.

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“Considering the present economic situation and shortage of foreign currency, it has been decided by the competent authority not to assume US dollar/other foreign currency exposure on Bangladesh till further instructions,” it added. An email sent to SBI didn’t immediately receive any response. Bangladesh’s foreign exchange reserves started dwindling after a spike in global commodity prices, especially of energy, widened its currency account deficit.

This forced Dhaka to approach the International Monetary Fund (IMF), among others, for help. It’s reportedly seeking a $4.5 billion loan from the multilateral body, over and above its entitlement of $1 billion, under the IMF Resilience and Sustainability Trust. Industry sources said the top lender doesn’t want to take fresh dollar exposure on Bangladesh for fears of large-scale defaults by importers in that country, if the forex situation there exacerbates.

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The SBI move comes after the Reserve Bank of India in July notified the new mechanism to settle international trade in rupees, to reduce the depreciation of the rupee against the dollar. Earlier this month, finance minister Nirmala Sitharaman said many countries had now expressed interest in settling bilateral trade with India in the rupee.

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