Representatives of atleast three Russian banks operating in India, including
Vnesheconombank, Sberbank and VTB, will meet executives from top Indian
banks in Mumbai on Monday to discuss rupee-rouble settlements between
businesses of the two countries.
According to sources close to the development, the meeting being organised
by the Indian Banks’ Association (IBA) will also see participation from the
RBI and Russia’s central bank representatives.
India and Russia have been trying to establish mechanisms for trade in
national currencies, bypassing the US dollar, for about a decade, but there
has been little progress on the ground.
The need for rupee-rouble trade has increased in the past one year as Russia
continues to face pressure of US sanctions. India-Russia bilateral trade is
highly dominated by defence deals and several Russian defence majors
contracted by the Indian government are currently under US sanctions.
Since the beginning of this year, Indian banks have halted defence-related
payments worth several billion US dollars.
The issue was raised during the 24th meeting of Indo-Russian working group
on banking and financial matters held in August in the Russian city of Tula
chaired by Ksenia Yudaeva, first Deputy Governor of the Central bank of
Russia, and Bibhu Prasad Kanungo, Deputy Governor of the Reserve Bank
of India. According to the minutes of the meeting reviewed by BusinessLine,
the infrastructure for such settlements is in place, but banks need to make
further progress to start transactions.
The Indian side expressed concern over negative implications of the US
sanctions against Russia while the Russian side said these challenges “can be
addressed through a more accurate interpretation by Indian banks of the
unilateral restrictions imposed against Russia by third countries”. The
Russian side said it will provide the Indian side with regular updates on the
sanctions regime which would then be communicated by the RBI to Indian
banks. Experts believe the current volume of trade between India and Russia,
which is around $10 billion, is too less to move to settlements in national
currencies, and for the beginning the countries could start with agreement
on currency swap.
“The trade volumes should go up by at least 30-50 per cent for the entire
ecosystem to be interested,” an analyst with a Moscow-based brokerage said.
“The rupee-rouble settlements could be more expensive and time
consuming, at least in the initial phase. Hence, for business participating in
this the governments and regulators of both countries should ensure they
create a favourable environment,” he added.
Analysts said that the launch of rupee/dollar futures by the Moscow
Exchange last month is a favourable step. Although technically it does not
pave the way for settlement in national currencies, it could popularise the
rupee in the Russian market.
Source: The Hindu Business Line, India Monday, 12 November 2018