Russia’s Sberbank raises 4% premium on trade settlement
NEW DELHI: Indian exporters are witnessing an increase in the cost of shipping goods to Russia, with state-run Sberbank charging a 4% premium on settling these trades, multiple people aware of the matter said, at a time India’s trade deficit with Russia has ballooned.
The move assumes significance as Sberbank, Russia’s largest lender, which remains out of Western sanctions, is among the few Russian banks that have agreed to settle trades in rupees.
To address these concerns, in July, the Reserve Bank of India proposed a rupee settlement mechanism to trade with Russia, however the mechanism is still to take effect.
Banks are unsure how rupeerupee trade settlement works, said Arun Kumar Garodia, chairman of the Engineering Export Promotion Council of India (EEPC).
“Some Russian banks, as well as Indian banks, have agreed to the settlement of trade in the rupee, but not all banks are on board. Their main bank is Sberbank, and they agreed to pay in rupees. But now, exporters are in a fix as their website says an additional 4% premium will be charged, which makes trade more difficult,” Garodia said, adding that state-run banks at least recognize exports to Russia, but private banks do not even issue a bank realization certificate (BRC), which acts as a confirmation that the exporter has received payment for the export of goods from the purchaser.
Without a smooth transaction mechanism and the fear of western sanctions, India’s exports to Russia fell about 24% in the April-august period. At the same time, Russia has become one of India’s top energy sources, surpassing even traditional suppliers Saudi Arabia and Iraq.
“Russians need hard currency, and that would pose a problem shifting to rupee trade,” said Biswajit Dhar, professor at the Centre for Economic Studies and Planning, School of Social Sciences, Jawaharlal Nehru University.
“Rupee holdings with the Russians have been high because of the trade deficit. Other than that, the exchange rate has been an issue, which has resulted in disagreements in the past, too. With the current trade imbalance, the rupee settlement mechanism is difficult. Moreover, the trade gap is rising because Indian exporters fear getting hit, dealing with sanctions-hit Russia,” according to Dhar.
“However, such transactions are not under the new rupee payment mechanism notified by the RBI on 11 July 2022. The Rbidesigned mechanism only entails trade in the Indian rupee, thus eliminating the exchange risk,” according to Ajay Sahai, director general of the Federation of Indian Export Organisations.