A state-run bank India used to skirt sanctions is spurring trade with Russia by using rupees as payment and expects to see more deals as Moscow gets increasingly locked out of the global financial system.
(Bloomberg) — A state-run bank India used to skirt sanctions is spurring trade with Russia by using rupees as payment and expects to see more deals as Moscow gets increasingly locked out of the global financial system.
UCO Bank, which handled India’s purchases of Iranian crude and managed billions of dollars of frozen payments, is now a key bank facilitating trade with sanctions-hit Russia in rupees. The lender posted record profit last year as interest income improved and global business expanded.
In the last three to four months, UCO Bank has carried out 23 transactions between Russian and Indian businesses in rupees with each deal not less than 10 million rupees ($120,730), said Soma Sankara Prasad, the lender’s managing director. He didn’t give a forecast on the expansion of the rupee trade.
“Trade has started both ways now and we expect it to scale up with time”, Prasad said in an interview with Bloomberg. “Trade is happening only in commodities and companies, which are not on the sanctions list.”
The development is welcome news for New Delhi’s government that’s been persuading Moscow to settle trade payments in rupees as India looks to tackle a trade deficit with Russia that’s ballooned to $43.06 billion last fiscal year.
Russia in the past has been reluctant to accept the Indian currency due to exchange rate volatilities and Foreign Minister Sergei Lavrov said earlier this month billions of rupees in payments are stuck in Indian banks. But as sanctions bite, Moscow is running out of options and needs the cash fast as its war in Ukraine continues.
Special Account
UCO Bank, among the smallest of the state-owned banks by market capitalization, facilitates the transactions through a special rupee account with Gazprombank, which acts as an agent to execute withdrawals and deposits for Russian businesses. Gazprombank is one of the main channels used for paying for oil and gas.
The Indian lender’s special rupee vostro account with Gazprombank excludes payments for crude so far. The account has been used by Russian businesses to pay for Indian goods ranging from engineering and leather goods to tea and medical equipment.
India’s Soaring Russian Oil Imports Render Rupee Trade Futile
The Reserve Bank of India last year permitted Indian banks to open special vostro accounts with lenders of other countries to settle trade in rupees and insulate the country from global currency shocks. Approvals were given to banks from 18 countries, from UK and Israel to Germany and Sri Lanka for opening these accounts.
The Kolkata-based lender is in discussions with other Russian banks to open these vostro accounts and is in the process of getting approvals, Prasad said. For now, UCO Bank is dealing with Gazprombank, which escaped tougher Western sanctions to ensure Russian gas flows into Europe.
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