Rupee Plunge Spotlights Trade-Credit Currency Risk

The devaluation of India’s currency is sparking accounts-receivable worries among U.S. exporters.

The large recent drop in the value of the Indian rupee relative to the U.S. dollar is causing worries among American companies that sell products to businesses on the subcontinent. More broadly, however, the rupee’s relatively sudden dive is bringing currency volatility overall into the spotlight as a trade-credit risk.

4603522450_e870af34fc_bAs with many other business perils, commercial insurers are serving as a lightning rod of risks that may just be starting to emerge. “Definitely, we’ve been seeing concern from insurers about India,” says Michael Kornblau, the U.S. trade-credit practice leader at Marsh, the insurance broker. “It had been a fairly benign market for a number of years, but now you’re seeing some concern about transactions going into India.”

On Friday, the U.S. dollar was worth about 61 rupees, putting the Indian currency slightly off its yearly low of 68 in early September. A year ago, it was worth a whole lot more: 52 rupees to the dollar.

Before September 18, when the Federal Reserve announced its decision not to curtail its bond-buying program, the rupee had fallen 10 percent against the dollar in the third quarter.

The Fed’s announcement was likely a hopeful sign that U.S. exporters might not have to worry too much about their Indian customers paying their bills. The Fed’s stimulus program had driven interest rates “to the floor and poured money into the global economy. Much of that money flowed into emerging markets – including India, Brazil, and Russia,” according to a recent report by FIREapps, a currency risk management vendor, on the effect of currency volatility on corporate balance sheets.

Still, the sluggishness of the Indian economy and increasing U.S. exports to the subcontinent have put U.S.-based insurers and insureds in a watchful mood. For the second quarter, India recorded its lowest quarterly growth since the start of 2009.

No Big Deal?
To be sure, such growth doesn’t put India into even the top 15 importers of U.S. goods. And there apparently haven’t been that many cases of U.S. companies having accounts-receivables problems with Indian importers. “So far, not a lot has materialized in terms of payment delays or claims” by U.S. trade-credit policyholders, says Jochen Dümler,  chief executive officer of Euler Hermes, one of the largest trade-credit carriers.

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