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India is looking at options for an alternative payment route after the US and European countries decide to cut off several Russian banks from international payment network SWIFT, reported Bloomberg Quint.

SWIFT, which stands for the Society of Worldwide Interbank Financial Telecommunication, is a global payment network that enables financial institutions to carry out the quick settlement of payments internationally.

The details and the full impact on Russia’s expulsion from SWIFT are yet to emerge. However, the Government of India, Reserve Bank of India (RBI), the country’s apex bank, and major banks are said to be already exploring alternative options.

India may consider a system it had set up about a decade ago to streamline payments to Iran as an alternative mechanism, two bankers familiar with the development told Bloomberg Quint.

In 2012, India picked UCO Bank as a primary payment agent between India and Iran, after the US imposed a number of sanctions that blocked Iran from engaging in bilateral trade with India.

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This arrangement enabled an Iranian bank to open a so-called ‘vostro’ account with UCO Bank, allowing Indian importers to submit rupee funds with this account to buy oil from Iran.  

UCO Bank would then route these payments to Iran.

In order to avoid restrictions from countries imposing sanctions, a relatively smaller Indian bank with limited global ties was selected for the purpose.

According to the sources, India may consider a similar proposal for Russian bilateral trade with India.

However, deciding on the exchange rate and ensuring adequate liquidity in converting ruble into rupees directly will be a key challenge in the process, one of the sources said.

“Since bilateral trade between the two countries is larger than India’s dealings with Iran, the domestic government and the central bank will have to consider what can be done to deal with the exchange rate risk,” the person was quoted as saying.

Between April 2020 and March 2021, bilateral trade between India and Russia was estimated at $8.1bn. Indian exports amounted to $2.6bn, while imports from Russia made up $5.48bn.