Exporters in Russia, who started trading with India using Indian rupees, have recently spent nearly $4 billion to buy India-made defence equipment and armaments, among other imports and Indian securities. This amount come from funds which were lying idle in their Vostro accounts.
Till October, Russian exporters held about $8 billion in Vostro accounts. These accounts were set up to facilitate trade between Russia and India, using Indian rupees and are managed by a domestic bank on behalf of a foreign bank.
As per a report by the Mint, due to a lack of investment opportunities in India, the money held in the Vostro accounts of Russian exporters remained unspent.
In a mere six months, they used only about 50 per cent of these funds, the report quoted two people aware of the matter, who declined to be identified.
One of them said, “It is difficult to say the exact amount in the Vostro accounts since some transactions are very complex. However, during the last 6-8 months or so, a large part of the amount has been used.”
Back in July 2023, the Reserve Bank of India (RBI) permitted 20 banks operating in the country to open 92 SRVAs of partner banks from 22 countries as part of efforts to promote bilateral trade in local currencies. Russia was one of them.
A Vostro account allows a foreign lender for transactions, including forex settlements, cross-border payments, and investments in a different market.
Russia also uses the rupee from these Vostro accounts to import goods from India.
India exports machinery, auto parts and other engineering goods to Russia.
The Russian Vostro account started witnessing a large amount of rupee deposited in as India purchased increased amounts of cheap Russian crude oil following the sanctions imposed on Moscow by the West.
For the unversed, Russia is among the largest suppliers of crude oil to India.
Russian funds (in rupees) have also been invested in Indian government treasury bills. As per regulations such funds are not allowed to be invested in corporate debt.
The report quoted a second person saying that both New Delhi and Moscow have been working on sorting the issue of the piling up of rupee payments in the Vostro account.
“Indian exports are also being settled from the Russian funds from the Vostro account,” the person added.
As per recent data from India’s commerce ministry, exports to Russia in 2023 stood at $4.06 billion, while imports totalled $60.60 billion.
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