DGFT tells Banks to push foreign trade in Rupee – Banks are reluctant to Catch 22 for Exporters

Banks are being nudged to popularize the settlement of cross-border trade in the rupee.

Due to the Russian invasion of Ukraine, European Union has prohibited global transactions with Russian entities using euro-denominated banknotes, while the U.S.A. has also stopped access to the U.S. Dollar. This made India, which continues to trade with Russia, consider reviving the Rupee-Ruble mechanism, conceived in 1953 under the Indo-Soviet trade agreement.

The central bank’s July 2022 directive came less than six months after the Russian invasion of Ukraine which led to several Russian financial institutions getting barred from using SWIFT, the internal messaging system which is widely used to facilitate and confirm cross-border payments.

New Delhi is pursuing its aim to internationalize the local currency. The Directorate General of Foreign Trade (DGFT) under the Ministry of Commerce and Industry has asked the banking industry body to advise all banks to “conduct outreach programmed with the international trading community to promote trade in special rupee vostro account (SRVA)

However Indian banks, particularly those with US operations, do not want to handle payments in yuan or even dirham in a sustained manner for trades linked to Russia. They fear it could be construed as a way to sidestep the sanctions

The challenge here is for the exporters, who want to do business however they do not get support from regulators and Insurers.

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