India Plans To Tap Smaller Russian Banks As Sanctions Hit Local Exporters' Payments

Confusion over insurance cover and payments is making Indian exporters fear losses against shipments to Russia, which faces U.S. and European sanctions after it invaded Ukraine.

Over the last few days, the Ministry of Commerce and Industry has been fielding queries from exporters throughout the country. Most of them are unsure about the insurance against their shipments to Russia and pending payments, said a ministry official on the condition of anonymity. In response, they are told that Indian farm, pharmaceutical and petroleum products are outside the ambit of the sanctions, the official said.

As Russia persists with its operations inside Ukraine, Western nations have imposed progressively harsher sanctions against that country. That includes restricting access of larger Russian banks to the SWIFT network for international payments as well as a freeze on the Russian central bank's reserves.

India export revenue worth $400-500 million is stuck, according to trade estimates. And exclusion of large Russian banks from the SWIFT payment system has left Indian exporters worried about payments.

With a delay in payment because of SWIFT, no new orders will be shipped. For the ones already dispatched, companies hope that a new payment mechanism is put in place, said another Indian exporter, who spoke on the condition to anonymity.

The Indian government is exploring ways to reach out to smaller Russian banks that have not been sanctioned, according to an official in the Ministry of Commerce. One of the routes being considered is via smaller Russian banks that are outside the ambit of sanctions, said the official, who isn't authorised to disclose details and spoke on the condition of anonymity.

An alternative method of setting up a rupee mechanism has also been discussed, the official said. In looking for a solution, India may look to a system it had established nearly a decade ago for payments to Iran.

Caught in the regulatory crossfire, Indian exporters are also worried that their shipments might be left unattended at Russian ports with no insurance.

"Earlier, we came to know that the Export Credit Guarantee Corp. of India has removed its umbrella insurance cover for Russian exports. Now, we hear there is going to be a case-by-case evaluation," said Rahul Singh, an exporter of engineering goods, including electrical machinery, to Russia.

To complicate matters, large amounts of engineering goods have already been shipped, said Singh. He has now reached out to the government regarding this. "Even if we receive payments, there will be a significant delay."

State-owned export credit provider ECGC Ltd. offers a range of insurance covers to Indian exporters against the risk of non–realisation of proceeds due to commercial or political risks.

Officials in the Ministry of Commerce and Industry told BloombergQuint that the coverage on export transactions to Russia has not been completely withdrawn.

"Customers have been advised to contact their servicing branch of ECGC for cover on shipments to Russia," a statement by the ECGC on Monday said.

The ECGC carried out a review of the country risk rating of Russia, as per the extant underwriting policy, the statement said. "Accordingly, with effect from Feb. 25, 2022, the cover category of Russia has been modified from Open Cover to Restricted Cover Category – I, for which revolving limits (normally valid for a year) are approved specifically on a case-to-case basis."

An emailed query to the Ministry of Commerce and Industry remained unanswered.

As of December 2021, India exported goods worth Rs 18,930 crore to Russia in the current financial year, according to data from the Ministry of Commerce. The shipments mostly included mobile phones, electrical and engineering goods, and pharmaceutical products, among others.

Meanwhile, many shipping liners have stopped supplying containers and taking bookings for Russian ports, the PTI reported quoting Sujit Chakraborty, president of West Bengal Custom House Agents' Society. "MSC, Maersk, Hapag-Llyod, which are leaders in global container shipping from eastern ports, have also stopped bookings.”