Indian Reserve Bank issues notification to operationalize USD 500Mn credit line under conditions

COLOMBO (News 1st); The Reserve Bank of India (RBI) on 10th March issued a notification to operationalize the USD 500-million line of credit provided by India to Sri Lanka to purchase petroleum products, the Economic Times reports.

The Export-Import Bank of India (Exim Bank) entered into a pact on February 2nd with Sri Lanka to provide the USD 500-million line of credit for financing purchase of petroleum products.

According to the RBI, out of the total credit by Exim Bank, goods, works and services of value of at least 75% should be supplied by the seller from India, while the remaining 25% of goods and services may be procured by seller from outside India.

The agreement under the LoC (line of credit) is effective from February 18th, 2022.

Under the LoC, the terminal utilization period is six months from the date of signing of LoC agreement or other extended date agreed at the request of borrower.

However, the extended date should not be beyond 12 months from the date of the agreement, the RBI said.

Sri Lanka is currently reeling under a severe foreign exchange crisis with falling reserves. The country is also grappling with a shortage of almost all essentials due to the lack of dollars to pay for the imports.

Necessary measures to operationalize the USD 500-million credit line from India for the purchase of petroleum products are underway in accordance with the understanding between the two governments.

Additionally, the Sri Lanka is also set to finalize another credit facility with India for food, medicine and other essential items which would help in facing the crisis, according to sources, the Economic Times states.

India is providing this loan against the backdrop of an earlier loan of US $ 500 million obtained for essential goods and another Rs. 400 million in interest due to be paid by Sri Lanka, of which an extension was previously requested.

Sri Lanka is in talks with India to obtain another $ 1 billion loan for the purchase of medicines and essential food items and the Finance Minister is scheduled to visit India in the next few weeks to look into the matter.