Qatar is reportedly refusing to accept letters of credit (L/Cs) issued by the State Bank of India (SBI), because it does not have an adequate credit rating.

Concerns are growing that other Gulf states could soon follow Qatar's suit and reject L/Cs from India's largest bank.

Ratings downgrade

India routinely requires L/Cs for purchases from Qatar, its biggest gas supplier.

But since Standard & Poor's downgraded SBI to the lowest investment grade rating of BBB-, the Qataris have reportedly been looking elsewhere for less costly L/Cs from banks with higher credit ratings.

Solution

SBI's chairman, Arundhati Bhattacharya, has told media that issues around the non-acceptance of the L/Cs issued by the bank are being resolved.

She said that the reason SBI's rating is low is because it is tied to India's country rating and explaining to the Qataris that the bank's position is stronger than it appears would satisfy them that the bank's L/Cs are acceptable.

Not convinced

But a seniorfinanceministry official told media that the Qatari government is not yet convinced by this explanation.

The official, who asked to remain anonymous, also said that talks to alleviate other countries' fears over SBI's L/Cs were underway.

Other countries

Partner and head of banking practice at KPMG (India), Harshvardhan Bisht, has said that concerns over SBI's L/Cs could easily spread to other countries in the Gulf.

Standard & Poor's downgraded SBI in 2012 because of expected deterioration in its asset quality while Moody's said concerns over asset quality and recapitalisation caused it lower its outlook in 2013.

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