India’s rupee trade mechanism with Russia may soon be in place with State Bank of India agreeing to be the facilitating bank although the Russian government is yet to decide on the correspondent Russian bank, exporters’ body FIEO has said.

“Russia may decide on the correspondent Russian bank to partner with SBI for rupee trade in the next 15 days. Once rupee trade starts, we will not have to worry about currency devaluation,” said A Sakthivel, President, FIEO. 

Demand for Indian goods

Exports to Russia could increase by $5 billion per annum once the rupee payment mechanism is put in place as there is a lot of demand for Indian goods from the country, per estimates made by FIEO.

“While the Russia-Ukraine war is a setback to exports in the short run, we are looking to increase our exports to Russia once the rupee payment mechanism gets operationalised,” Sakthivel said.

Western nations, including the EU and the US, imposed sanctions against several Russian banks and banned them from using the SWIFT messaging system after the country attacked Ukraine in February this year. While payments for exports to Russia has taken place using alternative currencies such as the Chinese yuan or the dirham since February, exporters say that the going has been tough. 

Operationalisation of the rupee trade mechanism, rolled out by the RBI in July this year to enable invoicing of exports and imports in Indian rupee will result in seamless payments though the transportation issue would also need to be sorted out.

In April-June 2022, India’s imports from Russia increased 369.29 per cent to $9.26 billion while exports declined 37.82 per cent to $435.62 million. 

Look out for non-sanctioned bank

“There is a lot of scope to increase exports to Russia, which is hit by Western sanctions, and is looking at India for increased purchases,” Sakthivel said. It is in Russia’s interest to buy more from India as it can then use the rupee balance that accumulates in its account as India imports more oil and defence equipment from the country.

Russia has circulated lists of items for possible imports from India including products such as medical equipment, pharmaceuticals, chemicals, industrial equipment, garments, furniture and jewellery.

India wants the correspondent bank in Russia to be amongst ones that have not been hit by Western sanctions. The two Russian banks that have presence in India, including Sberbank and VTB Bank, have both come under sanctions.

Many Indian banks, which have been involved in talks with Russia for the rupee trade mechanism, have been hesitant in partnering with Russian banks as they are concerned about possible sanctions in the future, sources tracking the matter said.

UCO bank was involved in the rupee-rial payment mechanism that had been put in place some years earlier to carry out bilateral trade with sanction-hit Iran.