The argument is that the sovereign ownership of these banks makes them de facto risk free and impervious to bank runs. In India, almost all commercial banks, except for the payment banks and small finance banks, are actively involved in providing credit facilities to enable international trade/investment of Indian corporates in the form of documentary credit, stand-by letters of credit, etc.
Acceptance and confirmation by the foreign banks of such guarantees issued by the Indian banks is based on the soundness of Indian banks as perceived by the foreign banks.