Banks in India are making letters of credit (L/Cs) harder to come by for Indian exporters selling goods to Sri Lanka as the island nation struggles with a severe foreign exchange and debt crisis according to a report in The Economic Times.

The Indian English-language business-focused daily says some financial institutions in India have cut back on discounting L/Cs issued by Sri Lankan lenders. Others are insisting on tougher terms depending on the financial strength of the parties and the L/C issuing bank or limiting the amount or tenor of the credit.

Economic crisis

Sri Lanka is grappling with one of its worst economic crises. Foreign reserves are down to around US$1.6 billion, the same amount as the country's monthly import bill.

Several Indian banks are operating on a collection only basis, releasing money only after receiving it from the bank in Sri Lanka, a mid-sized exporter told The Economic Times.

Indian bank perspectives

The business daily says HDFC Bank is "going slow on handling L/Cs" for exports to Sri Lanka; Axis Bank is "being selective"; ICICI Bank has cut limits for Sri Lanka while IndusInd Bank is closely monitoring developments and has been "selective in the transactions undertaken".

A senior official at the country's largest lender, State Bank of India, told The Economic Times, "we have not put a complete embargo on discounting export bills to Sri Lanka. It's done on the basis of limits available with L/C issuing banks."

The Economics Times article "Banks turn cautious on Sri Lanka exposures" can be found here.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.