Big Indian lenders avoid rupee mechanism in Russia

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MUMBAI, Oct 10 (Reuters) – India’s big lenders are reluctant to handle direct rupee-denominated trade transactions with Russia months after the scheme was put in place for fear of becoming the target of U.S. and government sanctions. Europe following the invasion of Ukraine, sources said.

Two small lenders decided to adopt the system after the Reserve Bank of India (RBI) said in July that it had put in place an agreement for international trade settlements in Indian rupees with immediate effect.

But big lenders with more exposure to the international financial system, and particularly the dollar, fear their business could be disrupted if they come under sanctions.

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Western sanctions aimed at punishing Russia for its invasion of Ukraine attempt to limit Moscow’s access to foreign currency, particularly the dollar. India has strong trade ties with Russia, and the rupee mechanism can help bypass the US dollar and euro for settlements.

An Indian diplomat in Russia said Russian banks had contacted eight major Indian counterparts to set up rupee trade deals, but Indian banks had not responded.

Some of these banks include India’s largest lender, State Bank of India, Punjab National Bank, Bank of India, Bank of Baroda and Central Bank of India, the source said.

None of these banks responded to email requests for comment.

But several sources within the banks have privately confirmed that they have decided not to use the structure, at least for now.

One, a senior executive at a major state-owned bank, said using such a settlement mechanism could violate certain sanctions rules. “They (Western nations) can impose a sanction on us, it will be a major loss of business and reputation,” the banker said.

Indian banks continue to settle trade with unauthorized Russian entities in dollars or euros, but the sources said they believe rupee settlements may come under greater scrutiny.

Another banker said the new settlement system could raise questions in the West and lead to sanctions. “The process to get them lifted can take months and it’s a risk banks aren’t willing to take,” the source said.

The United States imposed sanctions on major Russian banks, other institutions, President Vladimir Putin and oligarchs after the invasion of Ukraine, and anyone dealing with a sanctioned entity may also be subject to penalties.

A third source at a major Indian bank said the lack of liquidity in ruble trade against the more liquid rupee made it difficult to determine an accurate ruble-rupee exchange rate, another factor holding banks back. Indian.

Even if they were able to overcome this hurdle, what could Russian banks do with a pool of rupees in an account in India, the source asked. Indian banks do not have large reserves of rubles and therefore cannot offer direct exchange.

The two smallest Indian banks that have started the process of opening accounts to settle trade with Russia in rupees are the private lender Yes Bank and the public lender UCO Bank.

Yes Bank has linked up with PSCB Bank in St. Petersburg, the diplomatic source said. UCO Bank has won RBI approval to open a special rupee account for Russian bank Gazprom, and its chief executive Soma Sankara Prasad told Reuters last month he hoped to do so soon.

Yes Bank, UCO Bank, the Indian Banks’ Association and India’s Ministry of Finance did not respond to emails seeking comment.

According to government data, India’s imports from Russia hit $17.24 billion in April-August this fiscal, up from around $3.2 billion a year earlier due to a surge in purchases. of oil.

Indian exports to Russia in April-August fell to $992.73 million from $1.31 billion in the same period last year.

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Reporting by Nupur Anand and Rupam Jain in Mumbai; Editing by Raju Gopalakrishnan

Our standards: The Thomson Reuters Trust Principles.

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