The Reserve Bank of India (RBI) is considering the use of Russia’s alternative to the Western SWIFT financial messaging system for rupee-ruble trade settlements, Business Line has reported.
The System for Transfer of Financial Messages (SPFS) was set up by the Russian central bank after the country was cut off from the Belgium-based SWIFT network as part of Ukraine-related sanctions.
According to the report on Tuesday, while discussions with financial institutions are ongoing, India’s banking regulator considers the SPFS a good way of making trade settlements more expedient for both countries.
“There have been meetings between senior officials from the RBI and some public sector banks with their counterparts in Russia on the country’s proposed alternative messaging system for banks. There is a view in the RBI that the proposal is doable,” a source familiar with the discussions told Business Line.
“For national currency trade settlements and quick pay to be more efficient, it is important to have a new transaction facilitating mechanism… Direct settlements in national currencies will not only help in de-dollarization but also lead to cheaper, quicker and more efficient transactions.”
The source noted, however, that the RBI considers the matter “a diplomatically sensitive issue” due to sanctions placed on many leading financial institutions in Russia and the SPFS system itself.
A host of Russian banks found themselves on Western sanctions blacklists following the outbreak of the Russia-Ukraine conflict in early 2022. The SPFS was also targeted by EU restrictions in late June, when Brussels banned the bloc’s banks from using the system or doing business with non-Russian third-country banks connected to it.
With that in mind, the RBI reportedly wants more time to analyze the possible risks of using the SPFS, as it could be interpreted as an attempt to circumvent Western sanctions on Russian banks and put Indian institutions in danger of secondary restrictions.
Discussions regarding the use of the SPFS in trade comes amid Russo-Indian efforts to cut reliance on Western money and boost the use of national currencies in bilateral trade. According to an Economic Times report last month, the two countries have been exploring the idea of creating a national currency settlement system to start direct rupee-ruble trade. Under the mechanism, the countries’ central banks would set a direct rupee-ruble exchange rate instead of pegging it against the US dollar. The move is expected to help Moscow and New Delhi overcome trade barriers created by Western sanctions.