Russia–Ukraine Unrest Unlikely To Affect Indian Financial System

Several economists and bankers thought that the Russia-Ukraine unrest would adversely affect India’s financial condition. However, after taking a deeper look into matters, Indian banks have sighed in relief as they expect minimal impact on our trade financing or business.

The only two Indian banks in Russia are the Canara Bank and the SBI or the State Bank of India. Their joint venture, the Commercial Indo Bank, has a balance sheet of $100 million with the country and a minimum trade value of just above $8 billion. Thus, even if the situation in Ukraine is getting worse, bankers can relax a little bit.

The only aspect they fear getting hampered with is our defense imports from Russia. So, being our largest supplier, their continuous supply will be affected if leading countries like the United States and the United Kingdom impose financial restrictions.

According to a senior banker to a famous public sector bank, there is no considerable impact for now. This is because most of the small trade between Russia and India is processed by Russian lenders with offices in India or multinational banks. Thus, Indian lenders will be more or less safe from the coming volatility.

On the other hand, they commented that the only area that might suffer a hit is India’s defense imports that mostly come from Russia. However, this aspect is between the two governments, and the banks have barely any role to play there.

However, analysts have speculated that India can turn to the rupee-ruble trade with harsh sanctions. Under these circumstances, both countries can pay one another in their currencies to avoid any issues.

Chief economist at Bank of Baroda, Madan Sabnavis, explained that Russia has already acknowledged India’s diplomatic stance in its statement. Since India’s Russian export is at $2.6 billion and imports amount to $5.5 in fiscal 2021, the trade will not suffer due to the ongoing unrest. If there are any future disruptions, they can be handled by both countries paying each other in their currencies. However, Sabnavis too commented on the possible impact on India’s defense imports.

Bankers say that compared to China and the US’s trade, the Indo-Russian marketing is insignificant. So India too might have to look for alternatives if Russia is excluded from the global financial system, much like Iran was at one point.

The banker elaborated that till the Trump administration broke down the Asian Clearing Union system of payment settlement, Iran and the UCO Bank used to use the system to settle payments by using their home currencies. So a similar situation may be repeated with Russia as well. So if the case is dragged on for long, things will become worse.

Bankers, for now, can see no immediate adverse impact. So all we can do is wait for any news on this front. Till then, stay tuned.