Measures afoot in financial sector to insulate markets, trade with Russia - Times of India

Measures afoot in financial sector to insulate markets, trade with Russia – Times of India

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MUMBAI: A host of measures are afoot in the financial sector in response to the Russian crisis. These are aimed at ensuring continuation of trade with Russia and insulating the forex market from volatility.
On Monday, the Reserve Bank of India (RBI) renewed its agreement with Japan for a bilateral swap of up to $75 billion. Under this deal, both India and Japan can swap their local currencies in exchange for the US dollar. The move will reduce dependency on market purchase of dollars. It comes at a time when the currency markets are witnessing volatility because of the geopolitical situation in Europe.
In Delhi, the government clarified that exports to Russia would continue to be covered by the Export Credit Guarantee Corporation. To enable the ECGC to assess risks, the cover category of Russia has been modified from ‘open cover’ to the ‘restricted cover’. The government clarification came in the wake of reports that the ECGC has withdrawn its cover to Russian exports following the invasion of Ukraine and the subsequent sanctions imposed by governments and international bodies.
The Indo-Japan currency swap agreement enables the two countries to trade without having to buy dollars. Under the swap agreement, the RBI can get yen from the Bank of Japan, which can in turn draw rupees at a rate based on the prevailing market. This amount would later be repaid at the same exchange rate with interest. The RBI can use the forex drawn from the Bank of Japan to pass on to Indian importers or borrowers who have forex liabilities. The currency swap is similar to a foreign currency credit line.While Russia’s expulsion from the SWIFT messaging system as part of Western sanctions cuts off international trade transactions and financing, bankers say that Indian trade can still continue using a rupee-rouble mechanism. According to bankers, the government and the RBI are likely to work something out to enable importers to pay for their consignments. Bankers believe that the government may designate a small public sector bank for settlement of transactions with Russia in the wake of the sanctions imposed by international bodies. The bank would be a small lender without exposure to the US.
Even before the sanctions, the RBI was making efforts for internationalisation of the rupee and was creating the ecosystem for multinationals to hedge against currency risks in India. When the US imposed sanctions against Iran, payments were routed through Kolkata-based UCO Bank, which had a presence in Iran and Hong Kong. IDBI Bank had also opened multiple processing centres for trade with Iran. In Russia, State Bank of India and Canara Bank have a joint venture — The Commercial Indo Bank.



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