Indian Banks Look to Solve Russian Banking Sanctions Imposed by the US
Following on from the Russian President Vladimir Putin’s call to make life easier in Russian-Indian bilateral trade, Indian banks have been exploring ways with their Russian counterparts to circumnavigate both the sanctions placed on Russian trade by the United States and some of the Indian banking communities’ own lack of knowledge of Russian banking.
According to a news report, at a joint meeting organized by the Indian Banks’ Association (IBA) in Mumbai, the Indian and Russian banks proposed that India may designate one branch each to handle all Russia-related businesses in the wake of US sanctions against that country.
This would enable selected bank branches to become more familiar with the interpretation of the sanctions and help businesses work around them.
In the past few months, the Russian banks have expressed concerns over Indian banks’ reluctance to process payments, and issue or renew bank guarantees for any transaction related to Russia, citing US sanctions against the country.
According to a Russian banker, “Indian banks continue to be risk-averse when it comes to Russian clients”. Adding to that, “they even deny transactions permitted under US sanctions. Even banks in other geographies, including West Asia, Europe and the US itself, do not deny some of these services.”
The impasse has stalled payments for existing defense contracts, resulting in delays in deployment of critical defense equipment that India has procured from Russia. This has also restricted Russian suppliers’ participation in new tenders – limiting India’s choice of suppliers to Western players. If continued, it could impact annual transaction between India and Russia amounting to around US$10 billion.
The US economic sanctions relating to Russia include the Specially Designated Nationals And Blocked Persons List (SDN) and Sectoral Sanctions Identifications (SSI) list.
While transaction of all kinds with entities on SDN are prohibited, the sectoral sanctions prohibit transaction involving long-term debt with entities in the financial, defense, and energy sectors of the Russian economy.
Currently, Indian banks do not carry out any transactions with SDN-listed entities. In the case of SSI-listed entities, too, banks restrain from conducting transactions “due to Nostro accounts pressure”. However, if the proposal – as introduced in the joint meeting – is accepted, the SSI-listed entities will be considered on a case-by-case basis following evaluation by the banks’ compliance departments, that is, by the specific branches of banks introduced to evaluate transactions.
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