Bankers in India are reporting increased interest in letters of credit (L/Cs) as the country's exporters adjust to new global market conditions.

This is in marked contrast to the pre-credit crunch trend for traders to move away from L/Cs towards open account trading terms.

Risk mitigation

Amongst those bankers reporting increased interest in L/Cs is the head of trade services, cash management and client services group at Standard Chartered Bank, Zuzar Tinwalla.

He has seen traders increasingly focus on risk management and risk mitigation in trade finance over the last year.

Tinwalla told local media that his bank is now seeing a trend towards secured transactions, such as L/Cs bank guarantees, factoring and forfaiting.

Increased interest

Standard Chartered Bank reports a rise of around 10 per cent in L/C-backed transactions over the last year.

The State Bank of India (SBI) has also reported a smaller rise of between 2-3 per cent in L/C-backed transactions in the last twelve months.

Changing circumstances

This contrasts markedly with the trend prior to the last year. The SBI had reported falling L/C levels in the decade running up to the credit crunch.

One reason put forward by India's bankers for the rise in L/C interest is that the country's exporters are increasingly writing business in new and unfamiliar markets.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.