Russia, India to consider SWIFT alternative for ruble payments

The Government of India is considering a proposal from
Russia to use a system developed by the Russian central bank for bilateral
payments as the former seeks to buy oil and weapons from the sanctions
battered country, reported Bloomberg.

The plan comprises rupee-ruble denominated payments using
Russia’s messaging system SPFS, reported Bloomberg citing sources. There has
been no final decision and the matter is likely to be discussed when Russian
Foreign Minister Sergei Lavrov will arrive in India for a two-day visit on
Thursday.

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India is keen to continue bilateral trade as it relies on
Russia for weapons and cheaper oil as global prices surge. Oil prices have been
highly volatile since Russia invaded Ukraine in February.

India’s bilateral trade with Russia averages $9 billion
in past few years, mainly comprising defence hardware, fertilizer and some oil.
Russia is India’s main supplier of India’s hardware. Given the heavy discounts
on Russian crude oil since that attack on Ukraine, India has purchased at least
13 million barrels, compared with around 16 million barrels imported from the
country for the whole of last year.

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According to the proposal, rubles will be deposited into
an Indian bank and converted into rupees and the same system will work in
reverse, said the report. Whether the exchange rate will be fixed or floating
is still up for discussion.

“Prima facie this is a bilateral agreement for payments
against goods and services movement between two countries,” said Indranil Pan,
chief economist at Yes Bank Ltd. in Mumbai. “Therefore, there shouldn’t be any
risk imperative in this deal.”

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Russia also wants to link its MIR payments system with
India’s Unified Payments Interface (UPI) to facilitate seamless use of cards
issued by Indian and Russian banks after Visa Inc and Mastercard Inc suspended
their operations.

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The US and European Union had cut off seven Russian banks
from SWIFT, the international payment system operator. After sweeping sanctions
were imposed, Russia has been looking for alternative methods to continue
trading.