Rupee  settlement  may be hard to implement

The Reserve Bank of India’s move to allow international business transactions in rupees could facilitate trade flow with BRICS countries – Brazil, Russia, China and South Africa – and impose sanctions on Iran, but the new settlement mechanism may be not easy to implement, said Exim Bank director Harsha Bangari.

In an interview, she said more aid to Sri Lanka cannot be ruled out as the island grapples with its worst economic and political crisis. State-owned Exim Bank, which finances, facilitates and promotes India’s global trade, last month extended a crucial $55 million short-term credit line to Sri Lanka to finance the purchase of urea just before the harvest season. Edited excerpts:

How will RBI’s decision to allow cross-border transactions in rupees affect trading?

Conceptually, INR billing is a very good step. In practice, it is not so simple unless dollar trading becomes impossible and there is no choice but to use INR billing. The settlement mechanism would certainly help trade, and we had the same process with Iran. Two Indian banks had opened Vostro accounts and the accounts dried up when we followed the rules of the US Office of Foreign Assets Control (OFAC). We reduced our import account, which prevented us from depositing enough rupees into the account.

We also need to understand that INR billing will be very process driven. It is not a general approval that has been given. RBI has approved the mechanism, but banks opening Vostro accounts must apply for approval. So we’re talking about RBI oversight of the whole process.

INR (billing) has been up for debate for a while now. The idea is to remove the third currency from trading. There are also discussions about trade with BRICS countries. It should be examined whether BRICS countries can trade in their own currencies.

Is there more help planned for Sri Lanka?

More aid to Sri Lanka is a possibility that cannot be ruled out, but the government will make the final decision. Sri Lanka definitely needs more help. There was an estimate of $3 billion, and that estimate has risen to $5 billion due to the debt service they have taken on and also due to a severe foreign currency shortage.

The government will therefore take a different position. Now business is no longer driven by commercial considerations. It’s very on the auxiliary side. If they didn’t get urea on time, they would have lost the harvest season. Several matters are at stake, including political, civil and other matters.

Since February, when Sri Lanka entered a liquidity crisis, we have extended a $500 million emergency credit line to trade and finance for high-speed diesel and a $55 million line of credit for their urea needs.

In addition, the State Bank of India had provided a $1 billion line of credit for Sri Lanka’s basic necessities.

If you look at Sri Lanka’s debt profile, India is not a significant part of the money lent to Sri Lanka. It is astonishing. They have also raised money in the global capital markets.

What about concerns about a slowdown in exports due to concerns about a recession in the West?

It is not easy to export these days. Only with the Russia-Ukraine situation you don’t get ships. The costs of exports are rising from a logistical point of view and imports are also rising. It’s more of a supply disruption that has given way to inflation. Yes, there is fear of a recession in the West. We will have to see what the trading data looks like in the future.

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