What’s delaying Re trade with Russia? RBI, Centre want to know

The India-Russia trade deal is turning out to be a tale of ‘who will bell the cat’.

Banks want the regulator and the government to give a clear guidance that would shield them from any action by the US authorities. However, having laid down the rules on a rupee-denominated trade amid US sanctions on Russian financial institutions, the central bank and New Delhi think the banks should take the plunge.

The Reserve Bank of India (RBI) has called a meeting of all leading banks on September 7 to figure out what is holding them back.

“Most banks, particularly private sector banks, are reluctant. Very few banks may have opened vostro accounts of Russian banks till now. While all banks have been told to attend the meeting, in its email to the private sector banks, RBI has indicated that these banks have shown little or no interest and had deputed junior officials in earlier meetings,” a senior banker told ET.

‘FinMin Officials may Join Discussion’

“Some of the finance ministry officials are also expected to join. The Russian banks probably want the mechanism to take off, and with exports slowing even the government possibly wants to push it,” the banker said.

RBI has told the banks that in commensurate with the importance of the agenda, senior officials should attend the meeting.

On July 11, the central bank came out with a directive on international trade settlement in Indian rupees. While the RBI communique made no mention of Russia, it followed months of discussions to cobble together a trade payment arrangement with several Russian institutions barred from using the international messaging system provided by the Belgium-based Society for Worldwide Interbank Financial Telecommunication (SWIFT). SWIFT is widely used to facilitate and confirm cross-border payments.

Russian banks outside the sanctions list can still settle trade payments in dollars. However, with many large Russian banks facing sanctions following invasion of Ukraine and amid fears that more may come under sanctions, an alternative payment mechanism had to be put in place.

Relaxed Norms

RBI, in its July 11, relaxed the vostro account norms allowing surplus funds lying in them to be invested in Indian treasury bills and government bonds. A vostro account is an account a foreign bank opens with an

in domestic currency i.e. rupees.

“RBI has relaxed the vostro regulations as an enabling condition. But banks may be looking for certain comfort or handholding by the government and RBI. It’s difficult for the regulator to give a direction on trade with Russia. Even the RBI circular on vostro makes no mention of Russia,” said an industry source.


New Challenge

However, the reluctance of banks is understandable. “This is not a great business opportunity. Already banks have a lot of challenges and this could be an extra headache. Banks with large international exposure and business would be hesitant. Besides, there are private sector banks which are listed on US exchanges. It seems the ministry is asking the RBI which in turn is nudging banks. But I am not sure how many banks would come forward,” said another person familiar with the matter.

An RBI spokesperson did not respond to queries from ET.

In 2012, the Kolkata-headquartered

, which has very little international presence, was designated as the payment bank after the US imposed sterner sanctions to push Iran to accept controls on its nuclear programme. No such nodal bank, however, was identified by India after the US sanctions against Russian banks.

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