Transactions between India and non-sanctioned Russian entities have now been stabilized and settled in dollars or euros through some Western correspondent banks, State Bank of India (SBI) CEO of international banking, technology and subsidiary Ashwini Kumar Tewari told Shritama Bose. SBI’s international book has recently grown faster than its total loan book and the pandemic has given the lender a chance to spread its geographical risk, he said. Edited excerpts:
What is the current trade and payment situation between India, Russia and Ukraine?
Trade between India and the two countries is still quite small. When it comes to imports, in addition to the defense, sunflower oil is the raw material that has been hit hard and we see the effects on cooking oil prices. Thirteen percent of India’s tea exports go to Russia, which can be affected, but problems in the neighborhood offer an opportunity to balance it. Although crude oil imports from Russia are only around 1-2%, the price effect is global. India has been affected by it as well as on the fertilizer import front. Payment transactions with non-sanctioned Russian entities have now been stabilized and settled in dollars or euros through some Western correspondent banks. There is now a layer of extra security involved, what we call improved due diligence (EDD), which has been done.
So there must be an impact on volumes and costs?
Of course. The increased due diligence causes delays as well as the need to direct transactions through several banks. It was much easier to manage SberBank because it has a presence in Delhi. The volumes have really been affected. One of the reasons is that the diamond miner Alrosa has received sanctions. It accounted for a significant portion of rough diamond imports to India. Some ports are also under sanctions, due to which shipping companies are reluctant to accept shipments. Obviously, all of these lead to cost increases. EDD for each transaction and additional documentation for each part of the transaction also increases the cost.
You just took out a $ 500 million loan. What is the strategy behind it and can we see more such transactions this year?
The loan is exclusively linked to the international book. We want to be diversified not only in terms of the instruments we use, but also in terms of the geographies in which we are present. Swap rates were favorable last year and we raised money in the dollar / rupee market, but that is no longer the case. In addition, when interest rates rise, so do spreads, so it’s good to raise early. The money we have collected goes mostly to refinancing. Our international book size is increasing, although prices are also rising. We have a balance sheet of $ 69 billion and a large part of the book is current loans and trade financing. The good thing is that it is easier to transfer interest rate increases in the international market than in the domestic market due to competition.
With Covid and now the geopolitical challenge, have you seen any problems in the international business?
When the pandemic broke out, it was a first challenge for logistics. We had to follow local rules in different markets. Shanghai, for example, did not allow any offices to be open. The United States, on the other hand, classified banking as an important service and allowed banks to remain open. We introduced a VPN system and distributed our teams. We looked at setting up disaster recovery arrangements in alternative locations. After the first two or three months, things reopened in the United States and Europe. Business picked up well, with pent-up demand and government stimulus helping in these markets. With the exception of aviation and entertainment, most sectors performed well. During FY21 (Q3) and FY22 (Q3), the international book (the advance portfolio) showed greater growth than the bank – about 15% or so. For us, the pandemic arose as an opportunity to achieve a good geographical risk distribution.
Any problems with the quality of the asset?
Not really. Our net NPA (non-performing assets) in the international book is lower than 1%. There was an account in West Asia where we saw some stress. But in international markets, even if we see stress, there is the flexibility to sell the loans on the secondary market.