UCO bank and YES bank partners with Russian banks to facilitate international trade in rupees.

Under the mechanism, all exports and imports may be denominated and invoiced in rupees, with the exchange rate between the currencies of the two trading partner countries to be market determined. To settle these trade transactions, authorised Indian banks have to open Special Rupee Vostro Accounts of correspondent banks of the partner trading country.

Months after the Reserve Bank of India (RBI) introduced a mechanism for the settlement of international trade in rupees, two Indian banks have “joined hands” with Russian lenders under the framework, a senior government official told media sources.

UCO Bank and YES Bank have partnered with “a few Russian banks” to facilitate trade settlement in Indian rupees, the official said requesting anonymity.

Reports last month had said that some of India’s largest banks were shunning the rupee trade settlement mechanism introduced by the RBI in July on fears that they could face sanctions from Western nations should they enter into agreements with Russian entities.

The Indian central bank, on July 11, announced the setting up of a mechanism to settle global trade in rupees. Under the mechanism, all exports and imports may be denominated and invoiced in rupees, with the exchange rate between the currencies of the two trading partner countries to be market determined. To settle these trade transactions, authorised Indian banks have to open Special Rupee Vostro Accounts of correspondent banks of the partner trading country.

The central bank’s move, which it said was to promote the growth of global trade and to support increasing global interest in the rupee, came amid increasing pressure on the Indian currency in the wake of Russia’s invasion of Ukraine in late February.

However, the move is only expected to have benefits for India in the long term, with the rupee continuing to weaken against the greenback, having breached the 83 per dollar mark this week. So far in 2022, the rupee has weakened by more than 10 percent against the US dollar even as the RBI has sold record amounts of foreign currency to stem the rupee’s fall.