Sri Lankan banks are increasingly redirecting their surplus US dollar reserves into Indian markets, providing syndicated loans to Indian firms through the Gujarat International Financial Tec-City (GIFT City) platform, according to Prins Perera, Head of Treasury and Investment Banking at DFCC Bank.
Speaking at a forum on Indian credit in Colombo, Perera highlighted that these cross-border financial activities come with tax benefits, particularly through reduced withholding tax, making GIFT City a strategic hub for international financial operations.
Perera emphasized that Sri Lankan banks are open to supporting Sri Lankan companies expanding into India, while also actively engaging with Indian firms borrowing in foreign currencies. He stated, “In the last three to six months, we’ve executed a substantial number of transactions in India and plan to further expand these activities.” The move reflects growing confidence in Sri Lanka’s private sector tapping into India’s growth story, while leveraging dollar liquidity at home.
Following Sri Lanka’s sovereign default, local banks accumulated large dollar balances partly due to provisions made for defaulted bonds and foreign currency loans repaid in rupees. With limited domestic avenues for profitable dollar deployment, banks are now turning outward.
Previously, these dollar deposits were largely directed into Sri Lanka Development Bonds, loans to state agencies like the Road Development Authority, and to exporters or eligible private firms with foreign revenue streams. Now, the focus is shifting to India, where a combination of regulatory openness and financial infrastructure in GIFT City is creating new opportunities for Sri Lankan financial institutions to diversify their dollar asset base and strengthen regional banking ties.
