India’s Top Lender Moves To Curb Exposure To Bangladesh’s Falling Reserves

The State Bank of India (SBI) has issued an internal document asking exporters to avoid making deals with Bangladesh in US dollars and other major currencies, as it seeks to lessen exposure to the country’s falling reserves, according to a Reuters report.

“The country is facing a shortage of foreign currency due to higher import bills and weaknesses of Bangladeshi taka against dollar in recent times,” the SBI said in an August 24 letter sent to its branches, according to Reuters.

Bangladesh saw its foreign exchange reserves drop from $48 billion last year to just $37 billion on Friday. The amount provides just five months of import cover. Like many in the world, the country is grappling with the impact of the Russia-Ukraine war on energy and food prices, and its shrinking foreign exchange has forced it to turn to global lenders such as the International Monetary Fund (IMF). 

Exposure in Indian rupee (INR) and taka will continue, but the SBI does not want to further increase its dollar exposure to Bangladesh.

“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,” the source, who spoke on condition of anonymity, told Reuters.

Government data shows that from April to July, India’s exports to Bangladesh went up by 17.5% to $4.94 billion, while imports rose 11% to $580.7 million.

Bangladesh commerce minister Tipu Munshi said at an event last week that the country is seeking to decrease its dependency on the dollar and does not see any problems making deals in local currencies. He also said that the finance ministry was looking at ways to do this, but according to Serajul Islam, the central bank’s executive director, no such decision has been taken yet.

Last week, the country also started doing transactions in Chinese yuan to be able to trade with China.

Information for this briefing was found via Reuters, and the sources and companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.