Rupee Trade with Bangladesh likely as it fights forex crunch, say bankers

  • 26-Sep-2022
  • Rupee Trade with Bangladesh likely as it fights forex crunch, say bankers



Banking insiders notify that a shortage of dollars in Bangladesh, a decline in the nation's foreign exchange reserves, and a falling taka may soon open the door for a rupee credit line to Bangladesh and the settlement of India's trade with the neighbour in local currency.

In the wake of the turmoil Bangladesh has experienced, two senior bankers told ET that they anticipate the nation will be able to pay for its imports from India with the help of a bilateral loan denominated in Indian rupees.

With the Reserve Bank of India's June 11 circular allowing special vostro accounts that banks of the partner countries might have with banks in India, a framework for settling exports and imports invoiced in rupees now in place.

Further, it require a central bank notification enabling settlement of trade transactions in Indian rupees outside the Asian Clearing Union mechanism - an arrangement, in vogue since the mid-70s, to provide payments among member countries on a multilateral basis to economise on the utilization of forex reserves and transfer costs. (In May, RBI permitted settlement of trade with Sri Lanka in rupees as the country grappled with a critical shortage in hard currency).

Due to concerns that Bangladeshi banks may find it challenging to arrange for dollars from the market to pay for the items the country imports, Indian banks have become cautious and selective in their exposure to Bangladesh. Also Know about Bangladesh Import Data.

"Under the circumstances we understand that a rupee loan facility may be under consideration. It would limit the strain on Bangladesh's forex kitty and is likely to work out cheaper when the loan is repaid later. If the loan is in rupee, the outgo in taka terms would be less comparison to a dollar loan because the rupee would also depreciate," expressed a banker.

However, the benefit is only kept if the loan is only utilised to purchase Indian items with rupee invoices. The advantage is lost if the borrowed rupees are converted to US dollars and used to pay for items with dollar invoices. In the most recent fiscal year, Bangladesh's trade balance with India was $14 billion negative. The nation's foreign exchange reserves are now under $37 billion, a decline of roughly $11 billion in a single year.

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