Transactions between India and unsanctioned Russian entities have now stabilized and are settled in dollars or euros through a few Western correspondent banks, said Ashwini Kumar Tewari, managing director of international banking, technology and branches of the State Bank of India (SBI) to Shritama Bose. SBI’s international portfolio has recently grown faster than its total loan portfolio and the pandemic has given the lender a chance to spread its geographic risk, he said. Edited excerpts:

What is the current trade and payment situation between India, Russia and Ukraine?

Trade between India and these two countries is quite small anyway. In terms of imports, besides defence, sunflower oil is the raw material that has been most affected and we are seeing the impact on edible oil prices. Thirteen percent of India’s tea exports go to Russia, which could be hit, but problems in the neighborhood offer an opportunity to balance it out. Although crude imports from Russia are only around 1-2%, there has been an impact on prices globally. India has been affected by this, as well as on the fertilizer import front. Payment transactions with non-sanctioned Russian entities have now stabilized and are settled in dollars or euros through a few Western correspondent banks. Now there’s an extra layer of security involved, what we call Enhanced Due Diligence (EDD), that’s done.

So there must be an impact on volumes and costs?

Sure. Increased due diligence leads to delays, as does the need to route transactions through multiple banks. It was much easier to deal with SberBank as they have a presence in Delhi. Volumes have certainly been affected. One of the reasons is that the diamond miner Alrosa was sanctioned. It accounted for a significant share of rough diamond imports into India. Some ports are also under sanctions, due to which shipping companies are reluctant to accept shipments. Obviously, all this leads to increased costs. EDD for each transaction and additional documentation for each stage of the transaction also increases the cost.

You just raised a $500 million loan. What is the strategy behind this and could we see more deals like this this year?

The loan is linked exclusively to the international book. We want to be diverse not only in terms of the instruments we use, but also in terms of the geographies where we operate. Swap rates were favorable last year and we raised funds in the dollar/rupee market, but this is no longer the case. Also, as rates go up, spreads go up too, so it’s good to get up early. The money we collected is mainly for refinancing. The size of our international books is increasing, although the prices are also increasing. We have a balance sheet of $69 billion and a large portion of the budget is made up of term loans and trade finance. The good thing is that it is easier to pass on price increases in the international market than in the domestic market because of competition.

With the Covid and now the geopolitical challenge, have you seen any problems in international trade?

When the pandemic hit, there was an initial logistical challenge. We had to comply with local rules in different markets. For example, Shanghai has not authorized the opening of any offices. The United States, on the other hand, has classified banking services as an essential service and allowed banks to remain open. We have set up a VPN system and distributed our teams. We investigated the possibility of setting up disaster recovery arrangements in other locations. After the first two or three months, things reopened in the United States and Europe. Business has picked up well, with pent-up demand and government stimulus measures helping in these markets. With the exception of aviation and entertainment, most sectors performed well. In FY21 (Q3) and FY22 (Q3), the international portfolio (advances portfolio) showed higher growth than the bank – about 15% or so. For us, the pandemic appeared as an opportunity to achieve a good geographical distribution of risks.

Asset quality issues?

Not really. Our net NPA (non-performing assets) in the international portfolio is below 1%. There was an account in West Asia where we saw some stress. However, in the international markets, even if we see tensions, there is the possibility of selling the loans on the secondary market.

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