Russia and India Explore Opening Alternative Payment Channels Amid Sanctions

Russian banks have been cut off from the SWIFT financial network and the country is exploring opening alternative payment channels with India, including linking the Unified Payments Interface (UPI) with the Faster Payments System (FPS) of the Bank of Russia to continue cross-border trade.

Unified Payments Interface (UPI) is a system that merges multiple bank accounts into a single mobile application (of any participating bank), bringing several banking features, seamless fund routing & merchant payments together under one hood.

MIR is a payment system from Russia. It was launched in 2017. The Central Bank of Russia is the authority that has established this payment option and the Russian National Card Payment System is the one that operates it.

Establishing alternative mechanisms will allow cross-border financial transfers between the two countries at a time. Although bilateral trade with Russia stood at USD 8.1 billion in FY21 – less than 1.5% of India’s total – the country is heavily dependent on Russia for crucial defence equipment and parts. In addition, payments worth USD 500 million that are due to Indian exporters for goods shipped to Moscow remain stuck because of Western sanctions on Russia. In cross-border payments, money has to move between nations and involves a counterparty risk. Linking the fast payments network of two countries allows citizens of one nation to use their payments system in another country and vice versa. With global card networks such as Visa, Mastercard and American Express boycotting Russia, India’s RuPay Card network, run by the National Payments Corporation of India (NPCI), can be used as an alternative to allow people to transact.

Disconnecting Russian banks from SWIFT cannot stop bilateral trade and bring it to zero. Relevant Russian and Indian ministries and their financial organizations are in constant dialogue concerning the acceptance of RuPay and MIR cards within national payment infrastructures, as well as concerning the interaction of unified payment interfaces and the faster payment systems of the Bank of Russia. The Russian side invited Indian credit institutions to connect to the financial messaging system of the Bank of Russia to facilitate flawless interbank transactions.

India and Russia are also exploring the possibility of using China’s yuan as a reference currency to value the rupee-rubble trade mechanism, Mint reported. Both may also look at a floating rate arrangement. In September, India and Singapore decided to link their respective fast payment systems—UPI and PayNow. The RBI and Monetary Authority of Singapore has announced the project to link fast payment systems, expected to be operational by July.

The rupee-rubble trade is a payment mechanism that can allow Indian exporters to be paid in rupees instead of standard global currencies such as the dollar or euro. Under this arrangement, a Russian bank is required to open an account in an Indian bank while an Indian bank opens its account in Russia. Incidentally, the rupee-rubble payment mechanism with Russia has been attempted on a very small scale earlier for items such as tea.

 – Darshit Shah, Associate