INDIA is considering guarantees of lenders’ letters of credit and soft loans for exporters hit by a cash squeeze following Russia’s invasion of Ukraine and Western sanctions imposed on Moscow, two people familiar with the matter said.
Indian banks are scrambling after bills for imports from Russia have started bouncing and payments for exports have been stuck.
A government official, who declined to be named because the discussions were not public, said Indian exporters are owed about $500 million from Russia and the government may guarantee banks’ letters of credit or loans to help ease the crunch.
“Letters of credit is the most likely option,” the official said.
A senior banker familiar with the developments said “letter of credit or some form of bank guarantees can be given, so that trade settlement is not hampered. We are looking into it”.
The finance ministry and Reserve Bank of India did not immediately reply to requests for comment.
The government is also looking at having state-owned banks lend to exporters at reduced rates or provide funds to them directly up to the amount of pending payments from Russia and Ukraine.
The official said the decisions could be taken in a couple of weeks.
The banking source said then the central bank could follow up and “find solutions to how bilateral trades can be settled.”
India exported $3.33 billion worth of goods to Russia in 2021, mainly pharmaceutical products, tea and coffee, while imports totalled $6.9 billion, including defence goods, mineral resources, fertilizers, metals and precious stones.
“We will first look to ease the pain of Indian exporters. Import settlement issue resolution could take some time,” the government official said.
India, which has deep trade and defence ties with Russia, has avoided criticising its long-standing arms supplier publicly and urged both sides to cease hostilities instead, causing frustration among its other allies including the United States.