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India, Belarus to explore trade settlement in Indian rupees.
Dec 07, 2022
India will explore with Belarus, a close ally of Russia, the option of replicating the deal it has struck with Moscow for settling international trade in rupees. Indian bankers are expected to meet a team of officials from Belarusian financial institutions this month to discuss the possibility, a person familiar with the matter told ET.
Belarus is grappling with sanctions from the US and the EU for supporting Russia's attack on Ukraine. 'Since India imports fertiliser from Belarus, a rupee settlement could help. It could be exactly like the rupee trade with the Russian parties. Many Russian banks have opened Vostro accounts with us though some of the Indian oil refiners are paying hard currency to buy oil from Russia,' said a banker.
The industry body, the Indian Banks' Association (IBA), reached out to banks last week on the proposed meeting. 'The IBA may have been asked by the RBI or the government to pursue this. We expect the meeting to happen sometime this month or early January,' said another banker.
The trade settlement arrangement, finalised by the RBI in July, entails Indian importers depositing rupees in special accounts that overseas banks open with lenders in India and clearing the dues of Indian exporters from surplus balances in these rupee accounts. Though it was announced in the wake of sanctions on Russia following the invasion of Ukraine, the scheme can be used to settle trade with any country.
Last week, the RBI clarified that the rupee balances lying in the special Vostro accounts can be hedged -- thus enabling Russian companies to avoid losses due to fluctuations foreign exchange and a possible dip in the rupee against other currencies. In an FAQ issued a few days ago, the central bank also said that the balance of one 'special rupee Vostro account' (SRVA) can be transferred to the SRVA of another bank of the same country only.
The scheme permits investment of surplus funds lying in special Vostro accounts in Indian treasury bills and bonds.
India's imports from Belarus was $366.1 million last year, of which as much as $307 million was fertiliser; exports to the East European country was $71 million with pharmaceuticals and cereals accounting for $21 million and $11.4 million, respectively.
According to the RBI, trade settlement in rupees would reduce dependency on hard (or freely convertible) currencies like the dollar, euro and yen. The present mechanism involving the use of special Vostro accounts followed months of discussions between Indian and Russia after several Russian institutions were barred from using the international messaging system provided by the Belgium-based Society for Worldwide Interbank Financial Telecommunication (SWIFT).
'The government is in touch with banks to find out whether the new trade settlement mechanism is catching on. Quite a few banks have opened Vostro accounts though at least one of the Indian banks, which has US presence, is reluctant to do this business,' said an industry source.
economictimes.indiatimes.com
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