Three Indian Banks Under Consideration For Routing Payments To Russia
Western nations had imposed sanctions against Russia, including restricting access to SWIFT network for international payment.
Three smaller Indian banks have been shortlisted as possible intermediaries for routing payments between Russia and India, according to three government officials with knowledge of the matter.
The names of UCO Bank, Bank of Maharashtra, and Punjab & Sind Bank have been discussed between the Reserve Bank of India and the Ministry of Finance, the three officials said on the condition of anonymity.
This would help retrieve pending export revenue and pave the way for future trade, they said.
The government has also narrowed down two Russian banks—the state-run VTB and Sberbank—both of which have branch operations in India, to set up a rupee-ruble route that escapes the sanctions imposed, said the officials quoted above.
A final decision on this is yet to be taken.
Discussions to set up an alternative payment mechanism have been underway for more than a month now, and started after the U.S. imposed sanctions on large Russian lenders and cut them off from the SWIFT payment mechanism used to route most international transfers.
The RBI is also in touch with India's only bank in Russia, Indo-Commercial Bank, said one of the officials. State Bank of India and Canara Bank own 60% and 40% stake, respectively, in Indo-Commercial Bank.
But both Canara Bank and SBI have branch operations in the U.S., thereby making it difficult to involve them in any payment mechanism designed to bypass the U.S. sanctions.
A bank with the least foreign branch footprint will be selected for this payment route, said one of the officials quoted above.
This is not the first time India is setting up a bilateral payment route with a nation under the U.S. sanctions. Previously, a mechanism to route payments to Iran via UCO Bank has been used.
Close to $500 million worth of Indian export revenue is stuck because of the sanctions. Trade in other goods has also hit a roadblock. Setting a payment mechanism could ease some of these issues.
Further discussions on this will be held during the visit of Russian Foreign Minister Sergei Lavrov to India on Friday, said one of the officials quoted above.
Emailed queries to the Ministry of Finance and the RBI remained unanswered.
According to the officials, the rupee-ruble route is not easy as there isn't adequate liquidity in the currency pair directly, and limited demand for the ruble. Currently, some Indian banks can trade in dollars with non-sanctioned Russian banks, and then convert them into Indian rupee, but that is not a favourable route as more banks can come under the sanctions list, said the second official quoted above.
For the nine months ended December 2021, India exported goods worth Rs 18,930 crore to Russia, according to data from the Ministry of Commerce. Annual trade with Russia has averaged around Rs 68,000 crore in the last few years, consisting of mainly fertilisers and oil. Russia has been one of India's biggest suppliers of defence hardware.
