Economic Sanctions On Moscow: RBI To Review Impact On Indian Banks Exposed To Russia, Ukraine

Finance ministry officials are also tracking the developments and are in touch with the RBI and top lenders in the country

RBI | File Image (PTI)

New Delhi: As Russia's military advances in Ukraine have forced the western countries to impose economic sanctions against Moscow, the Reserve Bank of India (RBI) may review the state of impact on Indian banks and work out appropriate measures in the coming days.

Members of the Indian Banks’ Association (IBA) already went ahead to discuss the impact of the sanctions on Indian banks, according to the Indian Express report.

Even finance ministry officials are tracking the developments and are in touch with the RBI and top lenders, as per the report.

READ: Biden Closes US Airspace For Russian Aircraft, Repeats US 'Will Not Engage' In Ukraine During State Of The Union Speech

IBA asked banks to submit detailed information on their exposure to both Russia and Ukraine. Banks will have to furnish the details by Wednesday to the banking regulator.

Why Indian Banking Sector Remains Cautious?

Responding to the sanctions imposed against financial institutes of Russia, Indian banks such as SBI has decided not to process any transactions involving Russian entities due to global sanctions, according to a report by Reuters It is to be noted that ongoing transactions will not be affected while fresh transactions will be put on hold, according to Reuters report.

In 2021, India exported to the tune of $3.33 billion worth of goods to Russia including pharmaceutical products, tea, and coffee.

It is believed that the geopolitical developments would impact India’s import basket, and India may have to rethink of diversifying sources of imports of certain commodities, especially petroleum products and agri commodities.

However, the movement of payments between Russia and India seems “manageable” at the moment despite trade in both US dollars and Euro becoming difficult, as per the sources quoted in the report.

Also, the option of conducting transactions in rupee makes the situation better just as the transactions were carried out when sanctions were imposed on Iran. 

ost of the concerns are related to the expected spike in commodity prices, especially oil and gas due to the looming geopolitical crisis, and may have a significant impact on the Indian economy.

In a worsening scenario, RBI may have to manage the impact of rising crude oil prices on retail inflation. RBI Governor Shaktikanta Das has already indicated that the renewed surge in international crude oil prices will require close monitoring as they pose a risk to domestic inflation.

Meanwhile, the focus remains on the sole Indian bank Commercial Indo Bank LLC operating in Russia, which is a lead agent of the supporting organisations including State Bank of India and Canara Bank. The bank conducts operations with Indian companies that do business in Russia.

SBI holds a 60 percent stake in the bank while Canara Bank holds 40 percent. However, the impact of sanctions on Commercial Indo Bank is not yet clear as per the report.