Russia, India look for ways to smoothen forex dealings amidst US sanctions

Russia is concerned over Indian banks’ reluctance to process payments worth billions of dollars, citing US sanctions against Russia and is in discussions with top officials of State Bank of India (SBI) to find a way out.

Reports say, Russian diplomats and bank representatives met top officials at the State Bank of India on Thursday to discuss a way out of the Trump administration’s latest round of sanctions against Russia, imposed in April this year.
SBI has historically been the lead bank for India-Russia transactions, including the earlier rupee dealings, while Russia’s Vneshexonombank has been the lead bank for bilateral payments, with some deals being also processed by other banks such as Sberbank, VTB bank and Gazprombank.
The impasse, if it continues, could impact $10 billion in annual transactions between the countries.
“Over the past few months, SBI and other PSBs have refused to process or have delayed processing payments to Russian companies and are refusing to honour bank guarantees and LCs from Russian banks towards Russian companies participating in government tenders,” reports quoting sources said.
Since all these transactions are denominated in US dollars, Indian banks are reluctant to process them fearing loss of American and European businesses. This has made payments for defence deals also difficult, according to sources.
They say even for small payments of a few thousand US dollars, the banks have started asking for supporting documents, including the full ownership structure of the company and its affiliates and sub-contractors.
One of the options being discussed is to carry out settlements in rupee or rouble or a third currency such as the Hong Kong or Singapore dollar. In that case, the transactions would be carried out by a bank that has no exposure to the US market, just as UCO Bank was used to handle oil payments to Iran after the US imposed sanctions.
Matters worsen as banks’ compliance departments try to play safe and block all Russia-related transactions, even though the parties to the deals are not under US sanctions.
However, trade between the countries will continue. The issue was taken up by the leaders of the two nations in Sochi earlier this year and is likely to be discussed at upcoming meetings.