Industry
Russia sweetens oil deal with India; Sberbank ready to renegotiate high transaction fee with Indian importers
Summary
- Russian state-owned Sberbank is the first among lenders that has agreed to renegotiate the high transaction fee charged on payments made by Indian importers for Russian goods, including oil.
New Delhi: Russia has decided to sweeten India’s purchases of crude oil by offering to lower the transaction fee charged by its banks for converting foreign currency and remitting payments to suppliers, said two people with knowledge of the developments.
Russian state-owned Sberbank is the first among the lenders that has agreed to renegotiate the high transaction fee charged on payments made by Indian importers for Russian goods, including oil, based on the quantum of transactions, one of the two people said. Other banks transacting high volumes of Indo-Russian trade could follow suit, depending on the direction taken by Sberbank, the person added.
"Sberbank was initially charging a high premium in terms of making rouble payments. Now they have said that they are open for negotiations, depending on the quantum of transactions. It is now flexible regarding negotiating the premium that they charge on the transactions," the first person said.
Also Read: India refuses to pay Russian oil suppliers in yuan
Indian refiners and traders mostly pay for Russian oil imports in dirhams (the UAE currency), apart from rupees. Russian banks charge a fee to convert the currency paid by Indian importers into roubles and then remit it to the Russian suppliers. The central banks of both countries are yet to set up a rupee-rouble currency conversion mechanism.
Sberbank initially charged an additional premium of about 4% on the transactions.
“Sberbank is ready to display flexibility in pricing of transaction fees for imports of the Russian raw materials to India, thus contributing to the development of the India-Russia trade relations," the Russian bank said in response to a mailed query from Mint.
Currency preferences
During the height of the Ukraine war, in July 2022, the Reserve Bank of India said that it would put in place an additional arrangement for invoicing, payment and settlement of exports and imports in rupees.
The RBI’s move was aimed at promoting trade in rupees and to help ease settlements with Russia. However, the move did not gain momentum as expected. The main issue was that both the Indian rupee and the Russian rouble are not fully convertible. Additionally, the volume of trade is skewed in favour of Russia, with India’s oil imports far higher than Russian imports.
Queries sent to the union ministry of petroleum and natural gas remained unanswered till press time. The ministry, in response to queries from a parliamentary standing committee, had noted that no crude oil imports by state-run oil companies were settled in Indian rupees in FY23.
"Crude oil suppliers (including Abu Dhabi National Oil Company) continue to express their concern on the repatriation of funds in the preferred currency and also highlighted high transactional costs associated with conversion of funds along with exchange fluctuation risks," the ministry told the panel.
Also Read: IOC, HPCL, BPCL in talks with Petrobras for long-term oil deals
It added that suppliers expressed concern over the repatriation of funds in the preferred currency and highlighted the high transactional costs associated with conversion of funds along with exchange fluctuation risks.
Ajay Sahai, Director General & CEO of the Federation of Indian Export Organisations, noted that although settlements are made in roubles, there is no direct exchange rate for rouble-to-rupee conversion.
"In the case of payments made to India in rupees, there is not much of an issue - they (Russians) invoice and pay in rupees. But in the case of roubles, it has to be converted to rupees since there is no direct exchange rate and a third currency is used for conversion. For this, the bank charges a premium," he added.
Russia has emerged as the top supplier of crude oil to India in the past two years as it offered deep discounts in the wake of sanctions and price caps imposed by the West after the Ukraine war broke out. Crude oil imports from Russia stood at $46.49 billion during FY24, almost 50% higher than $31.03 billion in the previous fiscal.
A report by trade data and analytics firm Kpler in April noted that the currency issue remains a headwind for India’s oil supplies from Russia.
"With an ascent into Russian purchases as steep as India’s, there remain many headwinds to maintain such fast-paced imports. First, Russian sellers and Indian buyers are still yet to iron out their differences on the future currency of such oil flows – the Russian rouble is largely unusable for India’s refiners and vice versa for the Indian rupee, whilst the Chinese yuan is a far cry from being politically palatable in Delhi," it said.
Also Read: As Russian discounts fall, Indian refiners join hands to negotiate better terms
In a bid to ease and boost settlements in Indian rupees, the RBI last month extended the facility of allowing additional special current accounts to be opened exclusively for settlement of trade transactions.
On a review, and to provide operational flexibility, the facility of opening an additional special current account by the AD Category-I banks (maintaining Special Rupee Vostro Account in terms of the RBI circular dated July 11, 2022) for its constituents may be extended for settlement of their export as well as import transactions, the central bank said on June 11.
This move was also expected to help settlement of oil import transactions in the domestic currency, the second person said, adding that Indian state-run refiners were looking into the next possible move based on this notification and would consider opening vostro accounts.
Vostro accounts are those that are held on behalf of a bank by a correspondent bank.
