The discussion took place in a meeting attended by representatives of Mumbai-based public sector, private and foreign banks, and executive directors of the central bank. Last week, RBI had sought details from banks about their exposure to Russian entities and this meeting was meant to take that discussion forward, said the bankers cited above.

“RBI wanted to know details of banks’ exposure and the total banking sector’s exposure to Russian entities. There are issues on Swift and payment. It’s uncharted territory. It’s different from the Iran sanctions as this is on a bigger scale,” said one of the bankers, who attended the meeting, on condition of anonymity. “Our clients are worried about inflation and pricing costs.”

With the US sanctions on Iran in 2012 and 2018, banks could not deal in dollars, but refiners were able to route funds through state-owned Uco Bank because it has only a few foreign branches and used euro and rupee payments instead of dollars. The arrangement was worked out between the governments of India and Iran.

The second banker said, “There was no alternative payment mechanism proposed at the meeting by RBI. It was a discussion on the kind of issues being faced by lenders owing to the (US and allies’) sanctions on Russia.” Bankers in the meeting highlighted how payments for exports and imports are stuck following the banning of some Russian banks from the Swift messaging network.

The government and RBI are exploring the possibility of activating a rupee-ruble trade pact to process payments with those Russian entities that have been put under the sanctions. While the government is also looking at other alternatives like routing payments through a third country where both India and Russia have a presence, bankers rule out this kind of an arrangement.

“No country will stick its neck out as the US Office of Foreign Assets Control (OFAC) is involved,” said the first banker.

Government data shows trade between India and Russia was worth $8.1 billion in FY21, with Indian exports of $2.6 billion and imports of $5.48 billion.

Following Russia’s invasion of Ukraine last week, the US and the European Union (EU) barred some Russian lenders from the Swift network. The Society for Worldwide Interbank Financial Telecommunication, or Swift, is a messaging network that financial institutions use to transmit information and instructions. As of January, 40% of all Swift transactions by value were in dollars, followed by euro at 37% and pound at 6%.