Indian banks avoid Russia entities on West blacklist

THE GOVERNMENT and Reserve Bank of India (RBI) are yet to issue formal guidance on banking transactions involving Russian lenders in the wake of Western sanctions triggered by the Ukraine war but trade and industry are increasingly complaining about blockages in funds transfers and credits during routine transactions between Indian and Russian banks.

With the US and European nations blocking major Russian financial institutions from SWIFT, those entities on the sanctions list are unable to receive confirmations for fund transactions executed through the globally accepted messaging network.

But even transactions routed through Russian entities outside the SWIFT sanctions list, including that country’s largest lender Sberbank and Gazprombank, to accounts in some Indian banks are facing the effect of restrictions, The Indian Express has learnt.

This has made the execution of financial dealings involving Russian banks difficult from an operational point of view, according to industry sources.

“Regulatory authorities have not released any clear guidelines on how exactly to deal with payments of Indian exporters due from Russian entities. As of now, banks are themselves taking precautions in dealing with entities on the sanctions list of the US, the EU and the United Nations. Discussions on alternative payment mechanisms are also ongoing,” a senior banker said.

RBI officials and Indian Banks Association members have held discussions on the sanctions’ impact, and domestic banks are following the lead taken by the country’s largest lender, State Bank of India.

“No transactions involving entities, banks, ports or vessels appearing on a US, European Union or United Nations sanctions list shall be processed irrespective of the currency of the transaction,” SBI said in a letter to its clients in the last week of February. SBI did not respond to queries from The Indian Express.

Banking sources said the Western sanctions on Russian banks “are still a grey area”.

“Banks are not clear about the status of some of the transactions…whether they attract sanctions or not. There is also a possibility that Indian banks are using different yardsticks,” said a source.

Asked about funds received through SWIFT not being credited, IDFC First Bank said: “IDFC First Bank is crediting all inward remittances from Russia to accounts in India, received through SWIFT system, subject to compliances as applicable to the banking industry.”

From an operational point of view, there seems to be an evolving consensus on playing it safe — and transactions involving businesses, institutions or ports mentioned on the US or EU sanctions list will not be handled by Indian banks.

Operationally, though, there are loopholes. A key question is this: how will Indian clients or banks prove that funds remitted are not from a sanctioned entity, given that clients can transfer the funds multiple times through other entities within Russia that are not on the list before remitting it to India through SWIFT.

Several money-transfer companies, including Western Union, Wise and Remitly, have stopped services to Russia. Visa and MasterCard have also suspended services in that country.

An alternative payment mechanism is being seen as providing a durable solution, sources said. Talks are also underway between India and Russia to enable Indian banks to connect to the financial messaging system of Bank of Russia — called the SPFS — that could facilitate interbank transactions.

The Government is considering putting in place a Rupee-Rouble trade arrangement with Russia — based on the exchange rate with a third currency — to ensure that trade-flows continue seamlessly. India previously had a Rupee-Rouble trade arrangement with the erstwhile Soviet Union, primarily for purchases of military hardware, between 1970 and 1992.

India’s main exports to Russia include pharmaceuticals, mobile phones and seafood, while imports include oil and gas, fertilisers and agro commodities. Bilateral merchandise trade between India and Russia stood at $10.75 billion in the first 10 months of this fiscal, with India exporting goods worth about $2.8 billion and importing goods worth $7.9 billion.

The EU has barred seven Russian banks from the SWIFT messaging system that enables international financial transactions. The US has banned all energy imports from Russia and sought to restrict Russian access to high-tech components made with any parts or intellectual property from the US.


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