Local banks not keen on plan to align payment messaging system with Russia
According to Russian banks, connecting the systems will establish a seamless mechanism in settlement of trade between the two countries in rupee, and avoid sudden disruptions and possible blockage of funds if more of them come under US sanctions in the coming days.
However, domestic banks are unwilling to immediately back the proposed integration of the two messaging systems as it could be construed as a move to sidestep the US sanctions on a Russian bank.
The issue cropped up on Wednesday when Indian and Russian bankers held a meeting to sort out the details on the ‘rupee trade’, a senior banker told ET.
Any integration between the Russian proprietary messaging system and the ‘Structured Financial Messaging System’ (SFMS) – the Indian counterpart that allows intra and inter-bank message transfer as well as transmission of attached files in a secured mode – will not only require updating the local platform but need the approval of the Reserve Bank of India (RBI) and the government.
In July, the RBI paved the way for settlement of payments in rupees for trades between Indian and Russia, by giving greater flexibility in the operation of vostro accounts that Russian banks open with Indian banks for the purpose. A vostro account is an account a foreign bank opens with an
in domestic currency i.e. rupees. The regulator has allowed surplus funds lying in vostro accounts to be invested in Indian treasury bills and government bonds.
Local as well as cross-border fund transfers are supported by the confirmation messages between banks. As long as a Russian bank does not face sanctions, it can use the international messaging system provided by the Society for Worldwide Interbank Financial Telecommunication – the Belgium-based provider of a widely used messaging service to facilitate and confirm cross-border payments.
“Russian banks which are still unaffected by US sanctions have no branch in India. Once such a bank comes under sanctions, its office in Russia would want to find a way to communicate through a secured channel with Indian banks where it has vostro accounts. For this, they feel the Russian messaging system should be connected to SFMS. Emails are not considered a safe mode for sharing payment details and no bank uses fax anymore,” said another banker.