Reserve Bank of India Directs Checks on Small Russian Banks for Payments

The Reserve Bank of India (RBI) has instructed Indian lenders to conduct due diligence on smaller Russian banks that have been exempted from Western sanctions before allowing them to participate in the domestic fund clearing system and resume bilateral payments, stated by a person aware of the development.

Six small Russian banks, including Bank Zenit, have been exempted from sanctions and can thus be used to make and receive payments, according to Indian lenders. However, in order to conduct Swift transactions, the transacting Indian and Russian banks must use Swift’s Relationship Management Application (RMA) system.

RMA is a Swift-mandated authorization or filter that allows banks to specify which counterparties are permitted to send them financial messages.

“Those are being established and examined, and we must exercise due diligence in this regard.” “We have discovered a few banks that have been suggested by the government as well, but we have no relationship with these lenders so far,” said the cited individual.

Transactions between the two countries, which were previously conducted through large Russian banks, have come to a halt as a result of Western sanctions. The sanctions were imposed in retaliation for Russia’s invasion of Ukraine. The central bank, the government, and commercial banks are now discussing how to re-establish payments between India and Russia.

An email sent to the RBI went unanswered as of press time.

“Many of the smaller Russian banks do not have offices in India, and we need to figure out how they can open an account with an Indian bank or the RBI. We’ll need correspondent relationships with one or two of them “said the aforementioned individual.

According to this source, the central bank was looking for information on how much investment and credit exposure each Indian bank has in Russia. “All of that data has been shared, but it isn’t very important.” Investments in Russian entities, as well as loans to those entities, are insignificant. As a result, the losses to any Indian entity as a result of those will be minimal ” He stated.

Payments to any entity in Russia, including those that are not sanctioned, are taking longer than usual as a result of increased due diligence, according to the person.

To be sure, bilateral trade between India and Russia totaled $8.1 billion in the fiscal year ending March 2021. India’s exports totaled $2.6 billion, while Russia’s imports totaled $5.48 billion.

Meanwhile, the government is considering a variety of options to clear the backlog in trade payments. According to the cited source, the rupee-ruble trade being discussed is primarily for defense-related payments, as many of those entities are sanctioned. Payments to these companies are being considered through this route because the government cannot change these suppliers overnight, he said, adding that for entities not on the sanctions list, banks will have to engage with smaller Russian lenders.

India’s departments of economic affairs and financial services, as well as the ministries of commerce and industry and external affairs, are mulling over alternative methods for releasing payments to exporters and businesses stranded in Russia as a result of the sanctions.