Banks’ apprehensions regarding the implementation of the RBI’s recently formulated international rupee trade settlement mechanism will be discussed in depth in the capital on September 7.
The Department of Financial Services (DFS) of the Ministry of Finance has convened an inter-ministerial meeting on the date which will also be attended by RBI Deputy Governor T Rabi Shankar as well as heads of public sector banks, sources said. . The main aim is to allay concerns over the implementation of this new mechanism, they added.
Meanwhile, the lack of a proper mechanism to integrate payment mechanisms between India and Russia appears to be impacting the country’s tea and rice exports.
The apprehensions of the banks
Public sector banks are concerned that such an approach could result in the triggering of sanctions by the US Treasury Department’s Office of Foreign Assets Control (OFAC), as most Indian banks have accounts and existing banking relationships in United States. OFAC administers and enforces economic and trade sanctions based on US foreign policy and national security objectives.
“Most of our banks have accounts in the United States to facilitate dollar transactions for their customers,” a banking industry official said.
Secondly, even in cases of transactions with Russian banks or entities that are no longer on the sanctions list, the fear is that tomorrow, if the bank concerned were subject to sanctions, what would happen to the account of Indian banks in the United States is a cause for concern, notes a banker.
Recall that the RBI had set up on July 11 a mechanism for settling international trade in rupees to allow the invoicing of exports and imports. It was also to pave the way for the emergence of the rupee as a global currency.
While Indian importers will pay for imports in INR which will then be credited to these accounts, exporters will receive payments from these accounts. The settlement mechanism was announced when the Indian currency depreciated sharply against the US dollar. INR is currently pegged at nearly ₹80 per US$1, down from a value below ₹75 about a year ago.
Rice, tea exports impacted
According to industry insiders, while the RBI in July cleared trade settlements between India and other countries in INR, the fine print has yet to be ironed out. This is impacting exports, particularly of rice and tea, which have seen a year-on-year decline.
There are some problems with shipping companies’ operations to Russia. “Payments from Russia come in both INR and USD. But except for MSC line, no other shipping company accepts shipments to Russia, which has an impact on exports said Vinod Kaul, executive director of the All India Rice Exporters Association. Activity area.
Sujit Patra, secretary of the Indian Tea Association, said the RBI initiative would likely benefit trade primarily with Russia. “But for this to happen, our banks and their banks need to be linked and this has not been done so far. As soon as this is done, payments will be facilitated and exports will start to resume,” Patra said. .
Tea exports to Russia usually start to pick up from July-August, so the industry hopes exports will pick up once the mechanism is in place.
September 04, 2022