After the US, the European Union, and its allies moved to isolate some Russian banks from the global financial markets platform, the Society for Worldwide Interbank Financial Telecommunication (SWIFT), Indian banks will wait for orders from the government on whether to stop dealing with them, according to people familiar with the situation.
According to a source acquainted with the situation, the government has not issued any explicit orders on stopping the banks. It will be business as usual until the government gives an order to the contrary. The official went on to say that the US and its allies’ sanctions will not affect trade between India and Russia. SWIFT is the world’s most important international payments network, with trillions of dollars transmitted each year. It’s a secure messaging system that allows global trade to flow smoothly by facilitating speedy cross-border transfers.
Officials familiar with the situation say it’s highly improbable that India will impose a ban on cross-border trade with Russia, especially after it abstained from voting against the country in the UN Security Council over the Ukraine crisis.
The US, the UK, Europe, and Canada have all declared steps that include restrictions on the Russian central bank’s international reserves. In the following days, the sanctions will be applied. “It’s still unclear which Russian banks the US sanctions would target,” a top executive at a prominent public sector bank stated.
“Sberbank is Russia’s largest bank, so check to see if it’s on the list. Because over half of Europe’s oil and gas comes from Russia and is processed through SWIFT, it is tough to alter or stop these transactions overnight, and the US has been cautious about disclosing the identities of the banks.”
Officials added that once the names of the banks are released by the US Fed, more information would emerge. The VTB bank, Russia’s second-largest lender, has been subject to sanctions since 2014, following Russia’s invasion of Crimea. Still, experts believe that if the Sberbank is also subjected to limitations, it will have an enormous impact. Officials say that if Russian banks are shut off from SWIFT, settlements will suffer.
“Even if there are only a few Indian bank branches in Russia, many banks here have correspondent banking relationships with Russian banks for a lot of business activities, and this route might be struck even harder,” stated an unnamed payment system operator.
After another tumultuous weekend for global financial markets, the war between Russia and Ukraine has found a new front. In a note published on Monday, Deutsche Bank strategist Jim Reid said, “This is in effect a financial war today.” The statement from Deutsche Bank comes as Western allies attempt to restrict “selected” Russian institutions from using the SWIFT payment system. The ruling effectively limits Russia’s access to global financial markets, potentially jeopardizing the country’s economy.
The Russian ruble plunged by more than 20% on Monday as locals allegedly queued up to withdraw cash from ATMs. Russia’s central bank retaliated by boosting a key interest rate from 9.5 per cent to 20%. The Bank of Russia has also taken steps to restrict international securities sales by brokers, according to The Wall Street Journal.
Edited by- Subbuthai Padma
Published by- Radhika. N
