According to the Russian banks, connecting the systems will establish a transparent mechanism for settling trade between the two countries in rupees, and avoid sudden disruptions and possible freezing of funds if more of them are subject to US sanctions in the next days.
However, domestic banks are unwilling to immediately support the proposed integration of the two messaging systems, as it could be interpreted as an attempt to circumvent US sanctions against a Russian bank.
The issue arose on Wednesday when Indian and Russian bankers held a meeting to work out the details of “the rupee trade”, a senior banker told ET.
Any integration between Russian proprietary messaging and the “Structured Financial Messaging System” (SFMS) – its Indian counterpart which allows the transfer of intra and interbank messages as well as the transmission of attached files in secure mode – will not only require updating the local platform but require Reserve Bank of India (RBI) and government approval.
In July, the RBI paved the way for the settlement of rupee payments for trade between India and Russia, giving greater flexibility in the operation of vostro accounts that Russian banks open for this purpose with Indian banks. . A Vostro account is an account opened by a foreign bank with a
in national currency, i.e. rupees. The regulator has allowed excess funds in vostro accounts to be invested in Indian treasury bills and government bonds.
Local and cross-border funds transfers are supported by inter-bank confirmation messages. As long as a Russian bank does not face sanctions, it can use the international messaging system provided by the Society for Worldwide Interbank Financial Telecommunication – the Belgian provider of a messaging service widely used to facilitate and confirm cross-border payments. .
“Russian banks that are still unaffected by US sanctions do not have a branch in India. Once such a bank is subject to sanctions, its office in Russia would like to find a way to communicate through a channel secure with Indian banks where she has vostro accounts.For this they believe that Russian mail system should be connected to SFMS.Email is not considered a safe mode to share payment details and no bank no longer uses the fax,” said another banker.
However, Indian banks do not want to use an integrated payment system to deal with a Russian bank that is subject to US sanctions. “Whether the deposits of a Russian bank (en vostro) would be blocked in the event of a sanction is a hypothetical question at this stage. But tying SFMS to the Russian system could be seen as a way to circumvent US sanctions to deal with a sanctioned Russian bank,” an industry source said. However, medium and small Russian banks, which are not subject to sanctions today and are ready to open Vostro accounts in India, fear the consequences of sanctions in the future.
India’s SFMS platform, used to exchange remittance messages in the country, was developed by the RBI-backed Institute for Development and Research in Banking Technology (IDRBT).
“Some Indian private and public sector banks have approached the RBI to handle vostro accounts of Russian banks. It is unclear if anyone has received clearance so far,” another banker said.
Unlike the Trade Settlement Agreement for Indo-Iranian trade (post-Iran sanctions), no bank in India has been designated as a nodal institution due to the implications of the Russian invasion of Ukraine. Instead, India eased regulations on vostro accounts after months of deliberation.