Banks’ apprehensions over the implementation of the RBI’s recently formulated international rupee trade settlement mechanism will come in for an elaborate discussion in the capital on September 7.
The Department of Financial Services (DFS) in the Finance Ministry has on this date convened an inter-ministerial meeting which will also be attended by RBI Deputy Governor T Rabi Shankar, besides chiefs of public sector banks, sources said. The main aim is to allay concerns on the implementation of this new mechanism, they added.
Meanwhile, the lack of a proper mechanism to integrate the payment mechanisms between India and Russia seems to be impacting exports of tea and rice from the country.
Public sector banks fear that such an approach could lead to trigger of penalties from the office of foreign assets control (OFAC) of the US Department of Treasury, as most Indian banks have accounts and existing banking relationships in the US. OFAC administers and enforces economic and trade sanctions based on US foreign policy and national security goals.
“Most of our banks have accounts in the US to facilitate transactions in dollar denomination of their clients,” a banking industry official said.
Secondly even in cases of dealing with Russian banks or entities that are now not in the sanctions list, the apprehension is that tomorrow if the bank concerned were to come under sanction, what will happen to Indian banks’ account in the US is a cause of worry, noted a banker.
It may be recalled that the RBI had on July 11 rolled out an international trade settlement mechanism in rupee to enable the invoicing of exports and imports. This was also expected to pave the way for rupee’s emergence as a global currency.
While Indian importers will pay for imports in the INR that will then be credited into these accounts, the exporters will receive payments from these accounts. The settlement mechanism was announced when the Indian currency depreciated sharply against the US dollar. The INR is currently pegged at almost ₹80 to US$1, compared with a value of less than ₹75 about a year ago.
Rice, tea exports impacted
According to industry insiders, while the RBI had, in July allowed trade settlements between India and other countries in INR, the fine-print is yet to be firmed up. This is impacting exports, particularly of rice and tea, which has witnessed a decline on a year-on-year basis.
There are some issues with the operations of shipping lines to Russia. “Payments from Russia are coming in both INR and USD. But except the MSC line, no other shipping line is accepting Russia-bound consignments which is impacting exports,” Vinod Kaul, Executive Director of All India Rice Exporters Association, told BusinessLine.
Sujit Patra, Secretary, Indian Tea Association, said the RBI initiative is likely to benefit the trading primarily with Russia. “But for this to happen our banks and their banks have to be linked and that has not been done so far. As soon as that is done there will be ease of payment and exports will start picking up,” Patra said.
Tea exports to Russia usually start picking up from July-August so the industry is hopeful that exports should pick up once the mechanism is put in place.