The lines of credit extended to the Sri Lankan government by India Exim Bank may go through a “rough patch” as the island nation faces the worst economic crisis, a senior bank official said on Thursday.
Export Import Bank of India (Exim Bank), however, said there is no overdue payment from the Sri Lankan government as of now.
Exim Bank, at the behest of the government of India, extends lines of credit (LOCs) to financial institutions, regional development banks, sovereign governments and other entities overseas to enable buyers in those countries to import developmental and infrastructure projects, equipment, goods and services from India, on deferred credit terms.
It has extended LOCs worth USD 1.3 billion to the Sri Lankan government.
Under the Buyers’ Credit- National Export Insurance Account (BC-NEIA), the development finance institution has an exposure of around USD 230 million in the country.
“The LOC part is going to get into some negotiation between the two governments. I don’t think everything is rosy with Sri Lanka. This is going to be a rough patch,” Exim Bank’s managing director Harsha Bangari told reporters.
“How we navigate Sri Lanka in the near term is going to be a little difficult, but I am sure at least the government of India is totally invested in Sri Lanka,” she said.
While extending LOCs, Exim Bank takes risk, which is backed by the government of India, but it does not do credit assessment, Bangari said, adding that any decision on restructuring of LOCs will have to get initiated by the finance ministry.
“I am sure discussions have happened and there will be imminent restructuring. We will become a partner in negotiation but the table will be set by the government,” she said.
Bangari said the Sri Lanka government made its last repayment on March 31, 2022 and there are no bills overdue currently.
“Technically, there is no overdue from Sri Lanka today but that doesn’t mean it will not be there (in future). Going forward, there could be some stress,” she noted.
Sri Lanka is facing its worst economic crisis since gaining independence from Britain in 1948. The crisis is caused in part by the lack of foreign currency, which has meant that the country cannot afford to pay for imports of staple foods and fuel, leading to acute shortages and very high prices.
On the impact of Ukraine-Russia conflict on the bank’s exposure, Bagari said none of the exporters of the development finance institution has exposure to Ukraine.
Although the bank does not have any direct exposure to Russia, it has provided project guarantees to Indian companies that are doing contract work for Russian companies.
“We are very closely monitoring it on a daily basis. We are in touch with these companies. We have not seen any sign of stress till now. So, on the financial transaction side we do not have exposure,” she said.
The export credit agency has provided assistance to a couple of companies in India, which are the licensed manufacturer of Sputnik vaccine, but there are no concerns over it, she said.
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