According to reports based on a letter and persons familiar with the matter, Russia’s Sberbank has delayed to process the first payment from Indian Potash Ltd (IPL) under a contract put up before the Ukraine war to allow IPL to pay for Belarusian potash in rupees rather than dollars.

The failed pre-war payment agreement bodes ill for India’s attempt to establish rupee-rouble trading systems that can skip dollar and euro payments in order to evade U.S. and Western sanctions imposed following Moscow’s February 24 invasion of Ukraine.

IPL opened a rupee account with Sberbank’s New Delhi branch in early February at the request of Belarusian Potash Company (BPC), as Belarus faced increasingly harsh US sanctions following a 2020 election that Washington deemed stolen. Minsk denies this.

In December, the United States sanctioned the state-owned BPC.

According to an IPL letter issued to the chief executive of Sberbank in India, Ivan Nosov, IPL made its first payment of 1.77 billion Indian rupees ($23 million) to the Sberbank branch in India after opening an account.

The letter, dated May 23, stated that just a “minor” sum of rupees had been transferred to roubles to pay BPC, and that IPL could not wait indefinitely for the transaction to be completed.

If the bank acknowledged it could not complete the transaction, it stated, “we are afraid, we will call back our funds.”

IPL stated in the letter that it expected a response from the Russian bank within two days of sending the letter.

“But Sberbank has not yet responded,” one of the sources, speaking to Reuters on condition of anonymity, said on Monday.

Sberbank did not respond. IPL and India’s finance and fertiliser ministries did not respond to demands for comment from Reuters. BPC did not immediately respond to requests for comment.

According to the second source, sanctions placed on Russia during its invasion of Ukraine hampered IPL payment processing. “This made settling payments in roubles problematic because Russian banks were forbidden from using the SWIFT mechanism,” the insider explained.

Since the invasion, India and Russia have talked about establishing a rupee-rouble payment mechanism to facilitate commerce, including a suggestion for Russian banks and firms to create accounts with Indian state banks to settle trade deals.

During an April visit, Russian Foreign Minister Sergei Lavrov advocated for a system to avoid dealing in dollars and euros.

However, IPL’s experience suggests that even if such methods can avoid utilising dollars and euros, they will face challenges.

Three government officials said India would proceed with caution in establishing any rupee-rouble trade payment mechanism as long as the violence in Ukraine raged on, despite appeals from Washington and European capitals to isolate Russia.

According to one official, India will likely postpone any rupee-rouble payment system until there is evidence of a de-escalation in Ukraine.

(Adapted from Reuters.com)

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