Russian firms use ₹ to buy arms, debt

said Russian firms have been buying Indian securities, machinery and arms.

“It is difficult to say the exact amount in the vostro accounts since some transactions are very complex. However, during the last 6–8 months or so, a large part of the amount has been utilized,” one of the people said. Both declined to be identified.

A vostro account is managed by a domestic bank on behalf of a foreign bank. The foreign lender can use the account for transactions, including forex settlements, cross-border payments, and investments in the domestic market.

Until about six months ago, a large part of the money held in the vostro accounts of Russian exporters remained unutilized due to a lack of investment opportunities in India and continued volatility in exchange rates, Mint reported in October.

Spokespersons of India’s commerce ministry and the Russian embassy didn’t respond to Mint’s emailed queries.

Russian funds (in rupees) have also been invested in Indian government treasury bills since regulations do not allow such funds to be invested in corporate debt.

By the end of March 2023, Russian investments in these securities were estimated at $10–12 billion, mostly on account of Indian purchases.

“Both New Delhi and Moscow have been working on sorting the issue (piling up of the Indian currency payment in vostro account),” said the second person. “Indian exports are also being settled from the Russian funds from the vostro account.”

Russia continued to remain the largest supplier of crude oil to India in February with $3.61 billion worth of supplies. India imported crude oil worth $4.47 billion from Russia in January. India exports machinery, auto parts, and other engineering goods to Russia, a significant part of which are settled in rupee.

Russian banks’ exclusion from the SWIFT (Society for Worldwide Interbank Financial Telecommunications) payment system following western sanctions made its interbank payment transactions difficult, with limited access to a large part of the international markets.

To overcome this, India and Russia put in place the rupee payment system.

Russia has also signed local currency trade deals with Iran and China following the sanctions on Moscow after its invasion of Ukraine in 2022.

Russia continued to remain the largest supplier of crude oil to India in February with $3.61 billion worth of supplies