MUMBAI : Financial transactions of Indian banks with Russian lenders have come to an abrupt halt after the expulsion of some Russian banks from the Swift international financial messaging network, two bankers said.
Most international transactions are settled in dollars and involve US banks, which cannot transact with Russian entities.
Enforced by the US Office of Foreign Assets Control (OFAC) through its list of sanctioned entities, the Swift sanctions essentially mean banks cannot initiate transactions involving lenders or entities on the list.
Indian banks are hoping the government and the Reserve Bank of India (RBI) will work out an alternative payment mechanism as was done when Iran sanctions were imposed in 2012 and again in 2018.
“We cannot unilaterally decide to stop payments because of the sanctions. However, following the sanctions, US banks cannot execute these transactions. We are hoping that later this week, there will be some decision by the government since Russia is an important trade partner," said one of the two bankers cited above, both of whom spoke on condition of anonymity.
The Society for Worldwide Interbank Financial Telecommunication, or Swift, is a messaging network that financial institutions use to transmit information and instructions through codes securely. As of January, 40% of all Swift transactions by value were in dollars, followed by euro at 37% and pound at 6%.
Government data shows India and Russia had bilateral trade of $8.1 billion in FY21, with Indian exports of $2.6 billion and imports of $5.48 billion.
The second person, an official with State Bank of India, said the lender hadn’t taken any decision to stop transactions from the sanctioned entities. He said that as and when entities are added to the OFAC or the equivalent European Union sanctions list, any transaction which does not qualify the checks does not pass through. “Earlier, the sanctions on Russian entities were for 30 days. Now, it seems all transactions are going to be banned," he said.
The banker also said that in the case of US sanctions on Iran, banks could not deal in dollars, and refiners routed funds through state-owned Uco Bank because it has only a few foreign branches and used euro and rupee payments instead of dollars. The arrangement was worked out between the government of India and Iran.
“We import potash from Russia as part of an input to fertilizer and also have defence requirements. At this point, it is not clear if there will be an exception for India’s trade in these items by the US," he said.
Reuters reported on Tuesday that SBI would not process any transactions involving Russian entities subject to international sanctions, citing a letter and people familiar with the matter. However, the SBI official cited above denied that the bank wrote any such letter.
An email sent to SBI’s spokesperson seeking comments remained unanswered.
Meanwhile, banking links between India and Russia have been developing, with several Russian banks like VTB, Sberbank, Vnesheconombank, Promsvyazbank and Gazprombank opening their offices in India, according to the embassy of India in Moscow. Similarly, the Commercial Bank of India LLC ( a joint venture between SBI and Canara Bank) provides banking services in Russia.
