The Hindu Business Line : ‘Trade finance set to exceed $2 b in 5 years’

Mumbai, Sept. 13 Trade finance opportunities in India could offer revenues in excess of over $2 billion in the next five years, against the current $1.2 billion, said Mr J. Chandrasekaran, Chief General Manager, Small and Medium Enterprises, State Bank of India.

Addressing a banking seminar in Mumbai, he said that banks can also increase their profitability by offering not just traditional products like letters of credit (LCs) and bank guarantees (BGs), but also additional services like forex and derivatives. Forex income could account as much as 60 per cent of total LC income, he said.

“Trade finance bundled with cash management and remittances is more popular now, instead of a stand-alone product,” Mr Chandrasekaran said.

There is lot of movement away from the traditional stand-alone SME trade finance to the supply chain kind of business, especially in the auto sector, he added.

Trade finance is gaining momentum in global economy and banks are rethinking the way it is being done, said Mr Y Googoolye, Deputy Governor, Bank of Mauritius. The future of trade finance depends on collaboration between buyers, sellers, logistic companies, insurance companies and financial institutions, he added.

Mr Subin Subaih, Senior Vice-President, Asia Head, Global Treasury Services-Financial Institutions, Bank of America, said that Asia contributes 27 per cent of global merchandise trade and 23 per cent of global service trade.

“Client retention is a challenge. While LCs are still growing, it is a slower pace than open account. Partnerships is the way this business will increase,” he said.

In his address, Mr Asif Raza, Asia Pacific Head of Trade and Logistic Management, J P Morgan, said that banks should adopt risk mitigation tools for trade finance such as loan syndication and offering credit default swaps.

About insurance, Mr Raza said that trade credit insurance is still in a nascent stage in India and banks should think on these lines.