Will India and Russia take the UAE route to give wings to the rupee-ruble payment mechanism? According to a report published by Mint, India will make payments in rupee to the UAE against the purchase of Russian oil. In turn Russia buys goods and services from the UAE using rupee.

This three way process will help India and Russia bifurcate the existing hassles on the rupee ruble payment mode. Despite a mechanism being put in place—the Reserve Bank of India has allowed 18 banks to open special vostro rupee accounts (SVRA) to facilitate payment, there has been little movement on this.

Earlier, a senior executive of a trade body said that banks are unsure of using the rupee ruble payment mechanism for other global implications in the wake of the sanctions on Russia.

A vostro account — holding domestic currency –is one which is held by banks with partner lenders in other countries while the SVRA is essentially an additional facility helping in usage of freely convertible currency.

Last month, Russian ambassador Denis Alipov said that Indian banks have been cautious in dealing in a rupee-ruble payment system due to fear of “secondary restrictions” from the US.

“The vostro accounts have been opened. The mechanism of rupee-ruble trade has been established. It is now a matter for the banks to use it,” Alipov said, adding that the banks have been playing safe amid the sanctions. “It will take some more time for the knowledge that it is not at all detrimental for the Indian banking system to sink [in]. We are going to see an absolutely positive and expansion of the usage of this mechanism,” he said.

Also read: India-Russia energy partnership is here to stay, likely to outlast Ukraine war