Virendra Pandit
New Delhi: Amid reports the US may sanction India for its ‘neutral’ stand on the Ukraine issue, New Delhi is bracing for its adverse impact on its economy, which has barely bounced back after the pandemic.
After Russia invaded Ukraine on February 24, India has so far maintained a neutral stance and asked the two countries to resolve their issues peacefully and diplomatically. India has also abstained thrice during voting on resolutions condemning Russia in the UN General Assembly, the Security Council, and the UN Human Rights Council in the last 10 days of the war.
The ongoing war has already had ripple effects on crucial aspects of the global economy. Equities in stock markets have plummeted worldwide and international oil prices soared. Now banks in India are also concerned as the conflict escalates further, despite Russia announcing a partial ceasefire on Saturday to allow creating a humanitarian corridor to facilitate the evacuation of foreigners stranded in war-torn Ukraine.
Bracing for the emerging problems, the country’s central bank, the Reserve Bank of India, organized a bankers’ meeting this week to assess the exposure that lenders have to Russia and Ukraine and the impact it might have on Indian banks. The banks are yet to assess the full extent of the payments stalled because of the war, the media reported.
Indian banks are getting in touch with corporate clients to understand their exposure to the two warring countries to find out if their businesses could be significantly impacted. If so, this could delay their loan re-payments to Indian banks.
In FY22, the bilateral trade between India and Russia, which is a major supplier of defense products and equipment to New Delhi, mostly under government-to-government contracts, stood at USD 9.4 billion as against USD 8.1 billion in 2020-21.
Mainly, India imports from Russia items like fuels, mineral oils, pearls, precious or semi-precious stones, nuclear reactors, boilers, machinery and mechanical appliances, electrical machinery and equipment, and fertilizers, and exports to it pharmaceutical products, electrical machinery and equipment, organic chemicals and vehicles, among others.
At present, India is assessing how the ongoing war could impact this bilateral trade, particularly after the last week’s punitive sanctions imposed against the Russian central bank by the major economies of the Group of Seven (G-7) economies.
The West and its allies also removed Russian banks from the Society for Worldwide Interbank Financial Telecommunications (SWIFT) system as a move to further isolate Russia from global trade.
The State Bank of India (SBI) has stopped processing transactions of Russian entities sanctioned by the West and its allies. SBI has also issued a circular as it fears that any transaction with the sanctioned Russian entities or sectors could invite sanction on it as well, reports said.
This means that no transactions involving any such Russian entities, banks, or vessels, appearing on a US, European Union, or the United Nations sanctions list, would be processed irrespective of the currency of the transaction. Payments, because of such entities, will have to be processed by other mechanisms rather than through the normal banking channel.
SBI operates a joint venture in Moscow, called Commercial Indo Bank LLC, in which Canara Bank is also a 40 percent partner.
Banks in India are scrambling as import bills from Russia have started bouncing and payments for exports have been stuck in the wake of sanctions.