RBI issues notification to operationalise $ 500 m loan to Sri Lanka for petroleum products

The Reserve Bank of India (RBI) has issued a caution on Thursday to operationalise the $ 500 million line of credit provided by India to Sri Lanka, which is facing the worst economic crisis in decades as a result of the pandemic, in order to purchase petroleum products, according to a PTI report.

On 2 February, the Export-Import Bank of India (Exim Bank) signed a deal with Sri Lanka to provide a $ 500 million line of credit for financing the purchase of petroleum products.

The RBI said in a note that a seller from India should supply products, works, and services of value of at least 75% out of the total credit given by Exim Bank. The remaining 25% of goods and services can be purchased from outside India by a seller.

The terminal utilisation period is six months from the date of signing of the LoC agreement or another extended date agreed at borrower’s request. However, the RBI said that the extension date should not be exceeded 12 months from the conclusion of the deal.

Sri Lanka is now embroiled in a serious foreign exchange crisis with falling reserves. Due to a lack of funds to pay for the imports, the country is also struggling with a shortage of almost all essentials.

Sri Lanka’s power generation has been severely affected by the foreign exchange crisis, as the fuel required to run thermal power plants is in short supply. Over the next few days, the power regulators have warned of five-six hours of rolling power cuts.

According to sources, Sri Lanka is planning to sign a new debt agreement with India for food, medicine, and other essential items, which would greatly assist in coping with the crisis.