Russia is negotiating with India to introduce the Russian Financial Messaging System (SPFS, an analogue of the SWIFT system), so that Delhi can use rupees and rubles for payments for the purchase of military equipment, weapons and oil, circumventing the sanctions imposed by the United States and the EU. It is reported by Bloomberg. A final decision on this issue has not yet been made.
According to the agency’s interlocutors, the possibility of using the SPFS will be discussed during a two-day visit by Russian Foreign Minister Sergey Lavrov to India, which will begin on March 31, after the end of his visit to China. . According to Bloomberg, details of India’s possible connection to the Russian financial messaging system will also be discussed next week when a delegation from the Russian Central Bank arrives in the country. In turn, say the publication’s interlocutors, the Reserve Bank of India regularly holds discussions on the possible risk of sanctions associated with this move with representatives of the country’s financial institutions.
According to the agency’s interlocutors, Russia offers India the following method of payment: rubles will be deposited in an Indian bank and converted into rupees. The same system will work in reverse. Outstanding items include whether the exchange rate will be fixed or floating.
As early as March 14, India, as reported by Reuters and the Indian edition of Mint, citing sources, admitted the possibility of buying oil in rupees and even rubles with the possibility of introducing a rate floating exchange rate. To conduct such transactions outside of SWIFT, a Russian bank would need to open an account with an Indian bank, and an Indian one in Russia. However, on March 29, India’s Deputy Oil and Gas Minister, Rameshwar Teli, said in writing in response to a request from Parliament that the country’s government was not considering at this stage to introduce oil payment. Russian and any other oil. in rupees – however, negotiations on this issue will still take place.
India has already significantly increased its purchases of Russian oil from the Urals in March thanks to a record discount of more than $30 to 6 million barrels (just over 818,000 tons) for delivery in April, half of all the oil purchased by the country from Russia in 2021 Moreover, even after the introduction in 2017 of the US sanctions law CAATSA, which provided for secondary sanctions, the question arose of payment by India contracts for the supply of Russian arms, which were previously paid for in dollars. At the end of 2021, Rosoboronexport CEO Alexander Mikheev announced that the parties had switched to paying for contracts in rubles and Indian rupees.
SPFS was launched by the Bank of Russia in 2014, initially exclusively as an internal Russian system. In 2017, when it became fully operational, it became available to send transaction messages in any currency. In 2020, the volume of messages transmitted through SPFS reached 13 million, in 2021 it increased by 1.8 times. There are now 399 participants in the Russian system. In addition to Russians, as of December 2021, 38 foreign participants from nine countries are using it, most of them from the EAEU (20 Belarusians and one each from Armenia and Kyrgyzstan). In general, it is possible to make transactions even without systems such as SWIFT and SPFS, but then, as already discussed this month on oil payments in rupees, you will have to go through the cumbersome procedure of opening correspondent accounts directly with those banks that are involved in the relevant transactions, says Grigory Sosnovsky, director of the regional network for working with wealthy clients of BCS World of Investments.
Discussions on the possibility of using SPFS during settlements with India began in 2020. In March 2021, Lavrov, following a meeting with Chinese Foreign Minister Wang Yi, said that authorities financial and central banks of Russia and China intended to expand the use of SPFS for trade and mutual settlements. China uses its own system, similar to the Russian CIPS system (used by 23 Russian banks), which was to be linked to the SPFS. In the variant with India, it was also proposed to create its own analogue and connect it to the Russian system.
The whole difference between SPFS and SWIFT is the scope of use, SWIFT is not a proprietary and unique technology, it is practical due to its mass, global prevalence and ease of use, says Sosnovsky . The transition to SPFS of a bank, especially a foreign one, is not something supernatural, but always requires technical efforts and corresponding financial costs with SWIFT already operational, in this case the costs will be on the part of the banks Indian. If this is a political issue, then if resolved positively, perhaps several major Indian banks will receive compensation from the Indian government, the expert suggests.
Radical political decisions are not necessary for the introduction of SPFS in the colonies between Russia and India, believes Alexei Kupriyanov, a leading researcher in the Indian sector at the Institute of Oriental Studies of the Academy of science of Russia. According to him, it rather requires a fundamental decision on the trade of the rupee – the ruble. If so, the SPFS issue will become purely technical, Kupriyanov says.
However, India’s main fear when considering the possibility of using the SPFS and in general contacts with Russian financial institutions are now secondary sanctions, the analyst explains.Opening investments” Andrey Kochetkov. If previously India was able to circumvent US sanctions and obtain an exception under the CATSAA law by purchasing S-400 anti-aircraft missile systems, now the control is tighter. And although the effective freezing of Russia’s reserves and the disconnection of some of its major banks from SWIFT has made many countries think about alternative methods of payment, it is better to implement such alternatives when the severity of the crisis and the pressure of sanctions is diminishing. Therefore, in the short term, the SPFS will probably not be used by India, the expert believes. Sosnovsky agrees with him. “But in the future, it cannot be ruled out that it will spread to Russian-Indian payments, if the current negative situation does not last very long and ends within the next two months. Now India and Russia are more likely to use Chinese CIPS with yuan payments as an alternative,” Kochetkov concludes.