Russia has addressed the issue of billions of rupees accumulating in Indian banks by investing in Indian stocks and infrastructure projects. Additionally, despite Western sanctions on the state-owned shipping company Sovcomflot, Russia has taken steps to ensure the continuous flow of crude oil, sources familiar with the matter said.
Since 2022, billions of rupees have accumulated in special rupee vostro accounts (SRVAs) in India, following New Delhi’s increased purchases of discounted Russian crude. This increase occurred even as Moscow was excluded from Swift, the global payment system, after the invasion of Ukraine.
Russia has utilized the rupees in these SRVAs for investments in stocks, government securities, infrastructure projects, and other sectors, according to sources who requested anonymity due to the sensitive nature of the information. They opted not to disclose further details.
One person stated that most of the rupees that had accumulated in India have been used and that it is no longer a problem.
Trade between the two parties primarily continues in their respective national currencies, with some of the energy payments being conducted in UAE dirhams, according to sources. The Indian side has resisted using the Chinese yuan for payments, particularly due to the ongoing military standoff at the Line of Actual Control (LAC), which has severely strained relations between India and China.
Resolving the issue with the accumulated rupees has also simplified the payment process for pending defense transactions. It is now anticipated that Russia will complete the delivery of the remaining two S-400 air defense systems, part of a $5.4-billion agreement for five systems, by 2025, sources reported.
Last year, the issue of rupees piling up in Indian banks was highlighted by Russian Foreign Minister Sergey Lavrov, who in May 2023 referred to it as a ‘problem.’
Additionally, Russia has managed the complications stemming from the US Treasury Department’s sanctions on Sovcomflot, the state-owned shipping company and fleet operator, in February, including the designation of 14 of its oil tankers as ‘blocked property,’ according to sources. The Russian authorities are handling the insurance of their oil tankers independently, without reliance on Western companies, the sources added.
Sources noted that there has been variability in India’s crude oil purchases, which fluctuate with demand dynamics. In April, the portion of Indian crude imports that came from Russia climbed to nearly 40%, up from 30% in March, reaching a peak not seen in nine months. ‘The figures fluctuate,’ remarked one source.
Officials familiar with the matter stated that to ensure India’s energy security, domestic refineries import crude from a global array of sources based purely on commercial considerations like secure supply and cost-effectiveness. Russia is among the more than two dozen oil-producing countries that often provide significant discounts.
The officials also confirmed that payment transactions, conducted in local currencies, have proceeded without issues. Many countries, including Russia, have established special rupee vostro accounts (SRVAs) in India to manage trade settlements in their own currencies.
Russia is India’s second-largest import source after China. In the 2023-24 fiscal year, from April to February, India imported $55.6 billion worth of goods from Russia, a 37% increase year-on-year, primarily driven by $46 billion in petroleum imports.
Other significant imports included coal ($3.5 billion), fertilizers ($1.95 billion), and vegetable oil ($1.12 billion). During the same period, India’s exports to Russia amounted to $3.82 billion, reflecting a 36% growth year-on-year. The trade deficit with Russia stood at $51.78 billion, largely managed through about three dozen SRVAs.
Officials stated that while specific amounts in individual country Vostro accounts can’t be disclosed, funds are used for trade and other approved purposes, such as investments in securities and projects, according to commercial principles.
Money in special rupee vostro accounts (SRVAs) can be used for all permissible transactions under the Foreign Exchange Management Act (FEMA), as outlined by RBI guidelines. These funds can also be invested in mutually agreed-upon avenues, following regulatory guidelines.
In July 2022, the RBI initiated a mechanism to enable international trade settlements in Indian rupees, reducing transaction costs, minimizing exchange rate risks, and helping avoid payment issues due to international sanctions like those from the US.
