Economy

Indian banks mull ways to cope with US sanctions against Russia; special branches among options

ksenia kondratieva Mumbai | Updated on November 26, 2018

Indian banks may designate one branch each to handle all Russia-related businesses in the wake of US sanctions against that country. This was proposed at joint meeting of Indian and Russian banks coordinated by the Indian Banks’ Association (IBA) earlier this month in Mumbai.

According to sources, the selected bank branches will be more conversant in the interpretation of the sanctions and help businesses work around them.

The meeting was attended by senior officials from the RBI and their Russian counterparts, as well as officials from SBI, Canara Bank, Syndicate Bank and Union Bank of India, and Russia’s Sberbank, Gazprombank and Vnesheconombank.

According to the minutes of the meeting reviewed by BusinessLine, trade finance has become a big issue for Russian banks here as domestic lenders have not only stopped processing payments but also stopped issuing or renewing bank guarantees.

“This not only stalls payments for existing defence contracts — that will eventually lead to delays in deployment of critical defence equipment that India has procured from Russia — but will make participation by Russia suppliers in new tenders almost impossible, thus limiting India’s choice of suppliers to Western players,” a source in the Russian delegation at the meeting told BusinessLine.

Alternative to SWIFT

Indian banks did not accept a Russian central bank proposal to consider settlements through a Russian financial messaging system created in 2014 as an alternative to SWIFT. RBI officials felt it would not address the current concerns of banks.

According to sources, the proposal to create Russia-specific branches will only help if Indian banks are ready to amend their own internal processes. “It is practically impossible to include the details of such dedicated branches in hundreds of agreements that have been already signed between India and Russia,” said a source.

Russian central bank officials, in a presentations on the sanctions, noted that “more than 50 EU Acts and 20 US Acts (against Russia) are currently in force”. However, most banks are not on the sanctions list, the presentation said.

Explaining the restrictions imposed on entities included in the Specially Designated Nationals And Blocked Persons List (SDN) and Sectoral Sanctions Identifications (SSI) list, the presentation pointed out that transactions with entities on SDN are prohibited. With entities on the SSI list — which mainly includes companies in the financial, defence and energy sectors — the sanctions only limit transactions involving long-term debt.

Indian banks have said they do not carry out any transaction with SDN-listed entities and, according to RBI officials, there is currently no ‘solution’ for such transactions. In the case of SSI-listed entities, too, banks have constrains “due to Nostro accounts pressure”. Dealing with SSI-listed entities will be considered on a case-by-case basis following evaluation by the banks’ compliance departments.

Conservative approach

“Indian banks continue to be risk averse when it comes to Russian clients,” a Russian banking source told BusinessLine, adding that they even deny transactions permitted under US sanctions. Even banks in other geographies, including West Asia, Europe and the US itself, do not deny some of these services, the source added.

Published on November 26, 2018

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