NEW DELHI: International banks have become serious in accepting letters of exist established by Indian banks when letters of credit issued by the State Bank of India (SBI) have led to problems with international banks asking for confirmation from other banks,
According to banking sources, this proves the crisis of confidence building up among international banks view of the Rs 3,079-crore security scam and the delay in improvement of India’s credit rating.
The finance ministry is concerned that international banks are adopting a cautious approach despite the country’s foreign exchange reserves being comfortable. One main reason for the crisis is attributed to the wait and sees policy of international crediting agencies like Standard and Brand-Moody’s. They are yet to improve the process of improving the next rating. Finance ministry officials and banking circles do not see improvement in ratings before October.
Indian banks are blaming the Reserve Bank of India (RBI) for the problem. They are unhappy with the way the RBI has handled the scam. They feel the RBI passed the panic button too fast instead of handling the situation in a more professional way. The publicity attracted by the SBI in the securities scam is also cited as one reason for international banks exercising utmost caution in taking up country exposure.
Observers do not expect immediate improvement in the perception even though the SBI has come out with impressive results for 1991-92. The SBI has posted net Profits of Rs 175 crore during the year after making a massive vision of more than Rs 800 corer for the possible Curities scam. This shows the in here not financial strength of SBI. The crisis of confidence has placed the importers in a piquant situation international banks insistence on confirmation from bank other than Indian banks have added an extra cost to them .Banks abroad have not been very fussy over letter of credit which ensure prompt payment but they are wary of accepting usance letter of credits issued by banks usance letter of credit are generally paid after a period of 90 days or 180 days.
Article extracted from this publication >> June 10, 1994
