As per sources, large Indian banks are hesitant to process direct rupee trade transactions with Russia, months after the mechanism was put in place, for fear of becoming the target of US and European sanctions.
After the RBI announced that it had established an arrangement for international trade settlements in rupees with immediate effect, two smaller lenders have moved to adopt the system. However, larger lenders with greater exposure to the international financial system, particularly the dollar, are concerned that sanctions will disrupt their operations.
Western sanctions aimed at punishing Russia for its invasion of Ukraine seek to restrict Moscow’s access to foreign exchange, particularly the dollar. India has strong trade ties with Russia, and the rupee mechanism can assist in avoiding the use of the US dollar and the euro for settlements. According to an Indian diplomat in Russia, Russian banks contacted eight large Indian counterparts to set up rupee trade settlements, but the Indian banks did not respond.
