Talks planned for India to restructure $1.3 bn credit line to Sri Lanka

Standard & Poor's has downgraded Sri Lanka's long-term foreign currency sovereign credit rating to selective default

India will hold talks with Sri Lanka for restructuring the island nation’s $ 1.3 billion line of credit (LOC), seeking to assist its southern neighbour battling a weeks-long economic crisis.

India’s government backs the LoC from Export Import Bank of India's (India EXIM Bank). The exact terms of the loan would be finalised in talks that the Indian government will conduct and EXIM Bank will participate in.

Repayments on credit have been done till the end of March 2022. The restructuring is likely to involve deferment on repayment principal, said sources in EXIM Bank.

In February 2022, India EXIM Bank and Sri Lanka’s government signed a $500 million LoC agreement to help Colombo to cope with its current fuel shortages.

India said this week it is "fully supportive" of Sri Lanka's democracy, stability and economic recovery, responding after that country’s Prime Minister Mahinda Rajapaksa quit amid massive protests against a weeks-long economic crisis.

On April 12, the Sri Lankan government said it would suspend debt servicing on its foreign-currency obligations amid steeply rising external funding pressures.

Standard & Poor's has downgraded Sri Lanka's long-term foreign currency sovereign credit rating to 'SD' (selective default) from 'CC'.

Meanwhile, EXIM Bank has posted a 190.5 per cent increase in net profit at Rs 738 crore on FY22 from Rs 254 crore in FY21. Its loan book grew by 13.26 per cent Year on Year to Rs 1,17,619 crore at end of March 2022. The capital adequacy improved to 30.49 per cent in March 2022 from 25.89 per cent a year ago.

Harsha Bangari, managing director at India EXIM Bank, said financial institution Exim Bank raised foreign currency resources aggregating $ 2.05 billion and rupee resources aggregating Rs 19,046 crore, in FY22.

In FY23, the institution plans to raise about $ three billion, depending on the market conditions. About $ 1-1.5 billion would be raised by issuing long-term securities and balance through short-term loans. The domestic borrowings would be around Rs 20,000 crore in 2022-23, Bangari said.