Worried banks on Monday decided to put fresh transactions with Russian lenders on hold temporarily, as they met to deliberate on the potential impact of western sanctions and the move to block certain Russian lenders from the SWIFT global payments system in India. However, transactions that were committed before the sanctions would be processed, banking sources told FE. The meeting was convened by the Indian Banks’ Association (IBA) in Mumbai, one of the sources said.
Separately, senior finance ministry officials and bankers will meet on March 5 in New Delhi to review the evolving situation and firm up a strategy to respond to the crisis, the source said. The new financial services secretary, Sanjay Malhotra, will attend the March 5 meeting, he added.
Banks are studying the nature of sanctions already announced by the US and European nations and are waiting for more details to emerge on the list of Russian banks that are to be cut off from the SWIFT network.
Commenting on the Ukraine crisis, another banking source said: “If the sanctions remain limited to a few Russian banks, there may not be much of a problem, as payments can be routed through other Russian banks connected to the SWIFT network. Of course, this too will add to the issues being faced by international banks that have transactional ties with Russian entities.”
“But if the entire banking system of Russia is pushed out of the SWIFT network, we may face some issues, especially in undertaking trade-related transactions. However, since our exposure isn’t big enough, we are unlikely to see a major impact,” added the source.
If a Russian bank that is cut off from SWIFT seeks to make a cross-border payment with another bank, it will now need to use only phones or fax machines to convey its messages. This will severely limit the Russian bank’s ability to handle multiple cross-border trade transactions. Moreover, there will be only a very few global banks that would still be willing to keep transactional relationship with such Russian banks after the sanctions.
Moreover, if global banks start exiting Russia or curtail their exposure to the Russian market substantially, India, too, may witness some spill-over effect, said one of the sources.
Already, British bank HSBC is beginning to wind down relations with a host of Russian banks, including the second-largest VTB, Reuters reported on Monday, as financial institutions start to implement restrictions on Russia.
On Saturday, the US and its European allies announced fresh sanctions on Russia for its assault on Ukraine and pledged to block certain Russian banks’ access to the SWIFT system. They also warned of more sanctions if Russia didn’t mend its ways.
The sanctions also included restrictions on the Russian central bank’s international reserves worth over $630 billion. It will prevent Moscow from the central bank foreign currency reserves in its military operations in Ukraine and impair its ability to defend the slide in trouble. The Russian currency crashed to a record low against the dollar in sharply volatile trade on Monday, having lost about a third of its value so far this year.
