Russia and Ukraine War: Financial transactions of Indian banks with Russian lenders have suddenly come to a standstill after Russian banks were separated from the international financial messaging network SWIFT. Livemint has given this news quoting two bankers.
Most international transactions are settled in dollars and involve US banks and such transactions can no longer take place with Russian entities. The SWIFT restrictions, implemented through the list of restricted entities by the US Office of Foreign Assets Control (OFAC), essentially mean that banks cannot transact with lenders or entities on this list.
Alternative payment mechanism was prepared after sanctions on Iran
Indian banks are expecting the government and the Reserve Bank of India (RBI) to work on an alternative payment mechanism, which was followed by sanctions on Iran in 2012 and again in 2018.
One of the two bankers said, “We cannot decide to stop unilateral payments due to restrictions. We are hoping that the government will take a decision in this regard this week, because Russia is an important trade partner of ours.
Most of the transactions are done in Dollar-Euro.
Society for Worldwide Interbank Financial Telecommunication or SWIFT is a messaging network used by financial institutions to deliver information and instructions via secure codes. As of January, 40 percent of SWIFT transactions were in dollars, 37 percent in euros and 6 percent in pounds.
Government data shows that India and Russia had bilateral trade worth $8.1 billion in FY21, which included exports from India worth $2.6 billion and imports worth $5.48 billion.
Transactions get stuck with restrictions
An official associated with State Bank of India said that the lender has not taken any decision to stop the transactions with the banned entities. He said that as soon as the entities are added to the banned list of OFAC or the European Union, then no transaction related to them can be done. “Earlier, Russian entities were banned for 30 days. Now, it seems that all transactions are going to be banned.”
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