Russia wants payment messaging system to align, but Indian banks wary

If the messaging platforms of India and Russia are connected, it might help in improving the payments settlement mechanism and provide Russia with a cover from further sanctions

To protect themselves from fund blockage due to additional sanctions from western countries, Russian banks and other financial institutions are looking for ways to align their country's payment messaging system with India's messaging system. Indian banks are, however, reluctant to the idea, according to a report by Economic Times.

If the messaging platforms are connected, it might help improve the payment settlement mechanism between the two countries. Russian bankers believe that it will come in handy if additional sanctions are imposed on Russia in the coming days, the report added. 

"Russian banks which are still unaffected by US sanctions, have no branch in India. Once such a bank comes under sanctions, its office in Russia would want to find a way to communicate through a secured channel with Indian banks where it has vostro accounts. For this, they feel the Russian messaging system should be cETonnected to SFMS. Emails are not considered a safe mode for sharing payment details and no bank uses fax anymore," a banker said in the report.

Indian banks, on the other hand, believe that if the move is implemented, it might be considered a way to sidestep the sanctions imposed on Russia by the US. The US and European Union (EU) have imposed numerous sanctions on Russia since it attacked Ukraine in February.

"Whether a Russian bank's deposits (in vostro) would be stuck in the event of a sanction is a hypothetical question at this point. But linking SFMS with the Russian system could be viewed as a way to bypass US sanctions to deal with a sanctioned Russian bank," an industry expert from India said.

Currently, Russia is a participant of the Society for Worldwide Interbank Financial Telecommunication (SWIFT). It is a global provider of messaging services for confirming cross-border payments. Since the outbreak of the war in Ukraine, there have been talks in the EU and the US around excluding Russia from the mechanism. However, no step has been taken in that direction yet.

In July, the Reserve Bank of India allowed the settlement of payments between Russia and India in rupees. With this, the countries can avoid the USD while making the payments and use the INR instead. For the messaging platforms of the two countries to be aligned, the RBI needs to show a green flag which it has not done yet.