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The State Bank of India has asked exporters to avoid settling deals with Bangladesh in the dollar and other major currencies considering the Bangladesh’s present economic situation and shortage of foreign currency.
The lender issued a circular in this regard and sent it to its branch offices on August 24.
‘Bangladesh is categorised under “High Risk and Under Caution” risk category as per our country risk model,’ the SBI in its letter said.
‘The country has been facing a shortage of foreign currency due to higher import bills and weaknesses of Bangladeshi taka against the dollar in recent times,’ it said.
Considering the present economic situation and the shortage of foreign currency, it has been decided not to assume the dollar or other foreign currencies exposure on Bangladesh until further instructions, the notice said.
According to Bangladesh Bank data, the country’s foreign exchange reserves declined to $37.17 billion on September 14 from $48 billion in August 2021.
Bangladesh’s $416-billion economy is battling rising prices of energy and food as the Russia-Ukraine conflict widens its current account deficit, and dwindling foreign exchange forces it to turn to global lenders such as the International Monetary Fund, according to a Reuters report.
‘However, exposure in the Indian rupee and the taka will continue,’ it added.
Finance ministry officials have recently said Bangladesh is seeking a $4.5-billion loan from the IMF, in excess of its maximum entitlement of $1 billion under the IMF Resilience and Sustainability Trust, Reuters reported.
‘A source familiar with the matter said SBI did not want to increase its exposure to Bangladesh,’ it reported.
‘We have an approximate exposure of $500 million to Bangladesh and have taken the decision not to grow it further aggressively, and maybe, even reduce it as needed, with the news surrounding the economy,’ added the source, who spoke on condition of anonymity to Reuters.
In the past week, the Bangladesh Bank, the central bank of Bangladesh, freed up banks to do transactions in Chinese yuan, so as to enable trade with China.
In August, rating agency Standard & Poors affirmed its stable outlook rating for Bangladesh, saying it expected its external position to stabilise within a year.
India’s exports to Bangladesh rose 17.5 per cent to $4.94 billion in the period from April to July, or the first four months of the financial year to March 31, 2023, while imports were up about 11 per cent at $580.7 million, according to the Reuters report.
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