Banks have put on hold fresh transactions with the sanctioned Russian banks and are awaiting direction from the Reserve Bank of India on the way forward.
Top bankers huddled with senior finance ministry officials on Saturday, a day after some lenders met central bank officials, a top source told FE, amid concerns about the an emerging payments crisis being faced by Indian exporters consequent to the western nations’ sanctions on seven Russian banks. “The RBI has been gathering inputs from domestic banks on the crisis and will accordingly issue directions, if required, after consulting the government,” a senior banker told FE after Saturday’s meeting.
Financial services secretary Sanjay Malhotra chaired the meeting, convened by the Indian Banks’ Association (IBA). While the Ukraine crisis wasn’t part of the formal IBA agenda for the meeting, bankers were learnt to have briefed the secretary on potential fallout of the conflict.
The government is learnt to be weighing a proposal by exporters to allow the rupee-rouble trade to avoid any delay or default in payments. But any such mechanism in the aftermath of western sanctions on Moscow has strategic ramifications for New Delhi. So, the finance ministry will factor in the inputs from the ministry of external affairs, apart from the commerce ministry and the central bank, before allowing it to happen, as per official sources.
The IBA had also called a meeting of its members on February 28 to deliberate on the Russia-Ukraine conflict. Also, RBI governor Shaktikanta Das met finance minister Nirmala Sitharaman on Friday.
Banks have put on hold fresh transactions with the sanctioned Russian banks and are awaiting direction from the Reserve Bank of India on the way forward. Some Indian exporters have claimed that $400-600 million in payment is stuck, although there is no official word on it.
The US and its European allies have blocked VTB, Russia’s second-largest bank, VEB, another big player, and five smaller ones from the SWIFT financial messaging platform. This will cripple cross-border payment systems of these banks and impact trade financing. However, it still leaves scope for trade transactions to be routed through those Russian banks that have not been sanctioned yet. Nevertheless, it will add to hassles of the international banks as well as traders that currently have transactional relations with these seven lenders.
A senior banker had told FE last week that the impact could be limited if the sanctions remained limited to only the select banks. But if all Russian banks are cut off from the SWIFT network going forward, it will create some issues for Indian traders. Moreover, there will be only a very few global banks that would still be willing to keep ties with such Russian banks after the sanctions.
On top of this, if global banks start exiting Moscow or curtail their exposure to the Russian market substantially, India, too, may witness some spill-over effect, said one of the sources. Already, British bank HSBC is reportedly beginning to wind down relations with a host of Russian banks including VTB.