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Indian firms, banks cautious as Sri Lanka battles financial crisis

By Shine Jacob & Abhijit Lele
January 21, 2022 14:26 IST
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India is Sri Lanka’s third-largest export destination and it has invested heavily in the infrastructure and social sector projects in that country.

Sri Lanka

IMAGE: The national flag of Sri Lanka.Photograph: Dinuka Liyanawatte/Reuters

Banks and companies in India are taking a cautious approach towards Sri Lanka, which, reeling from a financial crisis, has sought a $1-billion loan from the country to import essential commodities.

A senior State Bank of India (SBI) executive said the bank was committed (to Sri Lanka) for the long term.

“As far as exposures (are concerned), the bank will be cautious on its dollar exposure to Sri Lankan entities till the situation improves,” he said.

 

SBI also transacts in the local currency —the Sri Lankan rupee — and that will continue because there is no risk there.

Among Indian firms, it will be Indian Oil Corporation’s local arm that is likely to face pressure.

Sri Lanka Energy Minister Udaya Gammanpila has indicated there may be a fuel shortage by the third week of January, urging the central bank to pump in foreign currencies if required.

This may be crucial because Lanka IOC (LIOC) has a 12-15 per cent retail market share in the island nation with more than 200 outlets.

The company was reportedly suffering losses due to higher international crude oil prices. Though its stand is that if state-run Ceylon Petroleum Corporation (CPC) is unable to meet the demand, it may chip in with import.

LIOC managing director Manoj Gupta did not respond to calls from Business Standard.

Adding to its woes, the country is likely to temporarily shut the Kelaniya refinery owing to difficulties in purchasing crude oil on the back of the prevailing foreign exchange crisis, the second time in the past three months.

Though NTPC had plans for a coal-based power plant and a solar power park, an official said the plans were on the drawing board.

“LIOC has no issues related to money and we procure finished products.

"We can meet the requirement through import. Their refinery is contributing only around half the requirement.

"During the past also, they had similar issues and we had purchased fuel from the spot market,” said Subodh Dakwale, former managing director of LIOC.

India is Sri Lanka’s third-largest export destination and it has invested heavily in the infrastructure and social sector projects in that country.

A Sakthivel, president of the Federation of Indian Export Organisations, said there was no stress on Indian exports owing to the Sri Lankan crisis, even though India was using the neighbouring nation’s port facilities.

India had extended credit of around $2 billion for infrastructure projects and invested around $1.7 billion over 15 years till 2019.

“As for government-to-government dealings, if they happen through a bank, there will be some mitigation involved.

"The government will not ask us to take undue risks,” the SBI official said.

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Shine Jacob & Abhijit Lele
Source: source
 

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