Ukraine crisis: UCO, SBI meet RBI today on payments to Russian firms

The Reserve Bank of India (RBI) is likely to meet some of the state-run lenders, including State Bank of India and UCO Bank, on Friday to discuss payment mechanisms to Russian companies. Indian banks have stopped processing payments to Russian firms after the US imposed sanctions on Russian banks following the invasion of Ukraine last week.

According to banking sources aware of the development, senior central bank officials will meet the banks on Friday. Earlier this week, banks were told to submit details of their exposure to the banking regulator.

The meeting between the banks and RBI comes amid reports that the government is exploring the option of reactivating the rupee-ruble trade between the two countries. The reports suggested that the commerce department has recommended the proposal, and announcement is likely to be made by the finance ministry after further deliberations between the economic affairs and financial services departments.

If bilateral trade between Russia and India is allowed in their national currencies, this could avoid any trade disruptions.

In this context, the presence of UCO Bank — a relatively small bank – in the meeting with RBI is significant. The Kolkata-based lender is seen as India’s strategic lender, particularly during conflict situations. The bank has a small capital and has minimum branches in foreign geographies — only in Hong Kong, Singapore, and Iran, and no presence in the US or Europe, which makes it less risky in the wake of sanctions imposed by western countries.

State Bank of India — the country’s largest bank — has a joint venture with Canara Bank in Russia, namely Commercial Indo Bank (LLC). SBI has 60 per cent stake in the bank, while 40 per cent is with Canara Bank.

There have been examples from the past on how India dealt with such western sanctions on its trade partners. In the aftermath of sanctions on Iran due to its nuclear programme in 2012, UCO Bank was designated by the Indian government as the payment bank for Iranian oil. Similarly, when sanctions were imposed on Myanmar, United Bank of India was designated to facilitate trade in the euro by routing transactions through Singapore.

Russia was India’s 25th largest trading partner as of 2021-22, with the size of the total trade at $9.4 billion during the first three quarters of the current fiscal year. Its share of exports compared to India’s total exports is at less than 1 per cent. Imports from Russia have a share of 1.27 per cent. Trade balance has been in favour of Russia, at least in a decade.