Some Indian businesses and banks are using an old trade playbook they had relied upon during the US embargo on Iran to sidestep the sanctions on Russia. With New Delhi and Moscow yet to cobble together a kosher mechanism for rupee-rouble trade, exporters and importers are turning to UAE, which offers a flourishing transhipment point and a money market where multiple currencies are freely converted.
Cargo movements and associated trade payments are being routed through outfits and banks in Dubai in transactions that come across like regular bilateral trade between India and UAE, two senior bankers and a few members of trade bodies told ET. Neither the banks handling the payments question the origin or final destination of the goods nor their clients talk about them.
"The payments are processed in a manner as if the Russian leg of the transactions doesn't exist, be it import or export. But banks know the actual nature and purpose of the trades," said an official with a large Indian bank.
"They just shut their eyes though there's no violation of rules here..It's happening over the past few months in various items, but not in a very big way. It was common during Iran sanctions," said the official.
At a meeting with RBI in March, Russian banks in India had proposed they could run the nodal accounts for a possible rupee-rouble trade and hold the surplus rupee balance (as imports from Russia exceeds exports to the country). “This was because an Indian bank offering a nodal account would risk US sanctions. But the Russian bank branch in India would have to use the surplus rupees—either park it with RBI in the reverse repo window or lend it in the inter-bank market or swap it for some non-dollar currency,” said a banker. Technically, the Indian branch of the Russian bank can swap the surplus Rupees for Renminbi with a Chinese bank in India (subject to RBI clearance) while the Chinese banks (which face no sanction) can swap the rupees into Dollar.
With decisions on the rupee-rouble trade pending, the UAE channel is being tried out when India’s exports to some of the neighbours are taking a hit. Shipments to Sri Lanka have Sri Lanka have virtually come to a halt with banks unwilling to discount letters of credit issued by banks in Lanka amid fears the country may not have enough dollars to pay back. Trade with Nepal may also suffer with Kathmandu imposing curbs on luxury imports to avert a foreign exchange crisis.