Wednesday, June 11, 2014

Gulf countries reject SBI’s letters of credit, cite inadequate credit rating





Dheeraj Tiwari, ET Bureau | 11 Jun, 2014, 06.23AM 

NEW DELHI: Some Middle Eastern countries, including Qatar, have refused to accept the letters of credit (LC) issued by the country's largest bank, State Bank of India, saying that the bank does not have adequate credit rating. 

This can increase the cost of imports from these countries as buyers will need to furnish costlier LCs issued by foreign banks. Qatar is one of the biggest source of gas for India. 

SBI chairman Arundhati Bhattacharya said there was an issue which has now been resolved. "There was this issue some time back wherein they required LCs issued by AAA banks, but we explained that the bank is bound by the country's rating," she said. Standard & Poor's had downgraded SBI in 2012 to BBB-, the lowest investment grade rating, on expected deterioration in its asset quality. 

A senior finance ministry official said that the Qatar government wasn't yet convinced and that talks were on to solve the differences. "We are actively in talks with other countries as well so that there is no issue," he added, requesting anonymity. 

LCs enable buyers to take delivery of goods without upfront payment and sellers to receive immediate payment soon after goods are shipped. 

"This could easily spread to other GCC (Gulf Cooperation Council) countries, so it is pertinent that the government intervene and sort out the issue before it leads to trade imbalance," said KPMG (India) partner and head of banking practice Harshvardhan Bisht.

India's banks have seen their ratings lowered following a sharp spike in non-performing loans be cause of an economic slowdown. In September 2013, ratings firm Moody's lowered its outlook on SBI's D+ financial strength rating to negative, citing asset quality and recapitalisation concerns. 

It had simultaneously downgraded the senior unsecured debt and local currency deposit ratings of SBI to Baa3 from Baa2, citing slowing growth and need for fresh capital. 

Non-performing assets of staterun banks rose to 4.44 per cent of their gross loans at the end of March 2014 from 2.32 per cent three years earlier. In its report, India Banking Outlook 2014: Little Respite in Sight, S&P said its outlook on the banks that it rates in India is negative to reflect the outlook on the sovereign credit rating on India. S&P has a negative outlook on India's BBB-minus rating. 

"We do not rate banks above the sovereign in India due to the direct and indirect influence of sovereign stress on banks," it noted in its report. India's 26 state-run banks will together need about Rs 4.15 lakh crore in fresh capital to be able to maintain lending growth under the Basel guidelines. The government is unable to meet this demand because of its own weak fiscal position.

No comments:

Post a Comment