NEW DELHI: Indian banks remain cautious about using a rupee-rouble payment system for settlement of trade with Russia because of concerns about “secondary restrictions” from the US, Russian ambassador Denis Alipov said on Monday.
Alipov’s remarks, made while addressing an event marking the 30th anniversary of the Indo-Russian Friendship Treaty of 1993, came against the backdrop of reports of problems in trade settlement in rupees using special vostro accounts opened by Russian banks in India to overcome the impact of Western sanctions.
Despite restrictions imposed on Russia by the US and its allies in the aftermath of the Ukraine conflict, trade with India touched a record figure of $30 billion in 2022 and there was a 36-fold increase in Russian oil supplies to India, Alipov said. Russia has become the largest supplier of crude, accounting for 25% of Indian imports.
Following the imposition of Western sanctions, the Reserve Bank of India (RBI) allowed Russian banks to open nine vostro accounts in IndusInd Bank and UCO Bank last November. A vostro account is one maintained by a foreign bank in the domestic bank’s currency.
“The vostro accounts have been opened. The mechanism of rupee-rouble trade has been established. It is now a matter for the banks to use it,” Alipov said. However, Indian banks continue to be “over-cautious” due to concerns that using the rupee-rouble mechanism could invite “secondary restrictions from the US”.
He added, “That’s the fear. The banks would like to be on the safe side. It will take some more time for the knowledge that it is not at all detrimental for the Indian banking system to sink [in]. We are going to see an absolutely positive and expansion of the usage of this mechanism.”
India and Russia are also not restricted from using the US dollar or euro with non-sanctioned Russian banks or using currencies of third countries for bilateral trade, Alipov said.
Russia has reportedly suggested the opening of an India-based financial institution with Russian ownership to get around problems in payments for bilateral trade, according to people familiar with the matter. Such an institution will allow Indian firms to use Russia central bank’s SPFS system as an alternative to the SWIFT financial transfer system.
Alipov said Western sanctions caused stress for India-Russia economic relations by interfering with or disrupting transaction and logistics mechanisms. “Insurance issues are also important. On all these issues, we are in very close dialogue between the two countries. There are very precise and concrete suggestions and very professional exchange of ideas and proposals from both sides,” he said without giving details.
He acknowledged that restrictions on Moscow’s use of SWIFT are unlikely to be lifted in the near future and India and Russia “need to invent something new” to continue their economic relations and trade.
Russia will maintain the current level of crude exports despite the price cap on oil imposed by the G7 and the European Union, Alipov said. “I think we will utilise every opportunity to maintain our oil exports…I would also like to specifically mention the price cap is a rather debatable instrument. I do not know whether it works or not,” he said.
“But certainly, we will not comply with it. We have our own regulation forbidding us to deal with countries which support the mechanism and observe the cap.”
India’s decision to buy Russian oil and fertilisers show that the country is ready to expand cooperation “on the basis of sovereign decisions without succumbing to coercion”, and the two countries are expanding use of national currencies and developing alternative transport routes such as the International North-South Trade Corridor to drive trade, Alipov said.
