exploring a possible payment mechanism for trade between the two countries, as the West attempts to cripple the Russian economy in response to the conflict in Ukraine. Citing banking sources, the newspaper said that one of the subjects of discussion between the parties was a deeper engagement of the Russian banks which have a presence in India, with a particular focus on VTB and Sberbank, which run branch operations in the South Asian nation. The objective here is to facilitate a possible rupee-rouble trade, where local importers and exporters are able to settle and receive payments in their domestic currencies.
“If such an arrangement is approved, the need for an Indian bank playing a nodal role-as Uco Bank did for Indo-Iran trade (post US sanctions on Iran)-may not be needed,” ET quoted a banker saying. “Funds would move between the respective local bank accounts of Indian firms doing trade with Russia and the Russian bank branches in India.”
Analysts are of the view that the nature of sanctions imposed on Russia is more serious compared to the curbs that were imposed on transactions with Iran. Here, Moscow is unable to Uco as the nodal bank, since the firm itself has announced targeted financial measures against Russian banks and entities. “There was some discussion within the industry on whether a relatively smaller bank with no overseas operations can play the part. But all domestic banks have nostro (or foreign currency) accounts with US and European banks. We don’t know whether they could be impacted if the sanctions deepen. Also, an arrangement which comes across as a ploy to sidestep the sanction may not work,” another banker said.
At the moment, Indian banks are able to carry out dollar-denominated trade and receive or settle payments in the US dollar with Russian banks which are outside the sanction list. However, many are concerned that such transactions would be disrupted if Washington or its Western allies decide to extend the sanction to cover more Russian banks.
“Any payment arrangement, particularly if it’s complex and different, may need the blessings of the regulators and governments. Indian banks which have overseas branches and even those which raise capital from the US investors would be reluctant to act as the nodal bank. This has complicated the situation,” an industry official told ET.
