New Delhi: The Narendra Modi government signed a significant deal with the Vladimir Putin administration last week where India agreed to adopt the Russian financial messaging system, Service Bureau of Financial Messaging System of the Bank of Russia (SPFS), for making banking payments to Russia, reports The New Indian Express.
The landmark agreement was signed between external affairs minister S. Jaishankar and visiting Russian deputy prime minister Denis Manturov on April 18 in New Delhi, said the newspaper. The deal also allows acceptance of Indian Ru-Pay cards and India’s Unified Payments Interface (UPI) in Russia, and the Russian MIR cards and its Fast Payments System (FPS) in India.
According to Bloomberg, about $2 billion in payments from India to Russia is stuck over the last year, and Russia has decided to stop supplying credit for about $10 billion worth of spare parts as well as the two S-400 missile-defence system batteries that are yet to be delivered.
India and Russia had earlier agreed to settle payments through Special Rupee Vostro Accounts (SRVA) but that has been stalled because of fear of western sanctions on Indian banks and the high imbalance in bilateral trade. Russia was keen to be paid in Yuans or Dirhams. While India is not keen to adopt the Chinese currency, the UAE has been wary of western sanctions in case India uses Dirhams to pay Russia for crude oil above the western mandated price of $60 per barrel.
The latest agreement clarifies that Russia can use the surplus Indian rupees to conduct other businesses in India or remit them back to Russia, reports the newspaper. The remittance is unlikely because of the Russian reluctance, as has been the case with the Iranian central bank, to have a reserve of rupees. As per Bloomberg, Russia had turned down India’s offer that the former use rupee proceeds from weapon sales to invest in Indian debt and capital markets to avoid stockpiling.
SPFS is a financial messaging system that works like the Society for Worldwide Interbank Financial Telecommunication (SWIFT), the international payment system used by banks to transfer funds worldwide. After Russia’s invasion of Ukraine, the US and the EU removed most Russian banks from the SWIFT network.
Since then, Russia has been asking India to adopt the SPFS to make the payments. Moscow developed the SPFS after Russia was threatened with expulsion from SWIFT when it annexed Crimea in 2014.