Financial Services Secretary Vivek Joshi has asked public sector banks and insurance companies to deal with sensitivity the cases of trade finance and insurance to exporters who are facing problems on account of the Red Sea crisis.
“In view of the Red Sea crisis, we have asked public sector banks and insurance companies to take into consideration the problem because ships are taking a longer route resulting in demand for higher trade finance and increase in insurance cost,” he told PTI in an interview.
In such a situation, he said, banks should deal those cases with sensitivity and they should not adopt a straight-jacket and deny them their services because of a long route taken by ships due to the Red Sea crisis.
“The requirement of trade financing and insurance should be dealt by them with sensitivity,” he added.
He also said that a high-level inter-ministerial committee headed by the Commerce Secretary is also meeting to take stock of the situation in this regard on Thursday.
The Red Sea strait is crucial for 30 per cent of global container traffic and 12 per cent of global trade. About 80 per cent of India’s merchandise trade with Europe passes through this route.
The situation around the Bab-el-Mandeb Strait, a crucial shipping route for traders connecting the Red Sea and the Mediterranean Sea to the Indian Ocean, has escalated due to attacks by Yemen-based Houthi militants since December 2023.
Because of this, the shipping costs have jumped and the consignments are taking more time to reach Europe and the US as the ships are taking the Cape of Good Hope route, encircling Africa.
Longer routes are resulting in delays of about 14-20 days and also higher freight and insurance costs.
Exporters are apprehensive that the crisis may cause some trade disruption because the cost of moving it around becomes expensive.
Earlier this week, the finance ministry asked banks and insurance companies to expeditiously resolve issues of exporters and facilitate overseas trade.
During the meeting, Joshi advised banks to classify issues faced by them in different categories and indicated that they may consider seeking necessary regulatory guidance from the RBI and also develop a standard operating procedure through the Indian Banks Association (IBA), an official statement said.
Functionaries of the Reserve Bank of India (RBI) and the Insurance Regulatory and Development Authority (IRDAI), the chairman of the State Bank of India (SBI) and senior executives of major commercial banks were also part of the meeting.
Insurance related issues faced by traders were discussed with IRDAI and progress made on those issues was informed by IRDAI, the statement said.
Joshi requested banks to work in close coordination with the Department of Commerce and export promotion councils for trade facilitation and early resolution of problems faced in trade.
Financial services such as trade finance, banking and insurance have a very important role to play in facilitation of Indian trade with all partner countries.