India Potash’s Payment Deal with Russian Bank Stumbles

Before the Russia-Ukraine conflict began, Indian Potash Ltd (IPL) had set up a deal with Russia’s Sberbankthat would allow the company to use rupees to pay for Belarusian potash instead of dollars. However, people familiar with the matter said that the Russian bank had not yet processed the first payment, which means that the deal between the two is faltering. This is certainly not good for India because the country wanted to create trade mechanisms involving the rupee and trouble that will help it in bypassing euro and dollar payments.

In this way, the country could avoid the Western and US sanctions that have been imposed after Russia began its military operation in Ukraine on February 24th. Back in the beginning of February, IPL had opted to open a rupee account with the branch of Sberbank located in New Delhi. This was after a request was put forward by the Belarusian Potash Company (BPC). After an election in Belarus in 2020, it had been subjected to tough US sanctions because Washington believed they had been fraudulent, which was disputed by Minsk. The sanctions had been imposed against the state-owned company in December.

A letter was sent to Ivan Nosov, the Sberbank’s CEO in India in which the company disclosed that they had made a payment of about 1.77 billion rupees, which is around $23 million, to the Indian branch of the bank after they had set up an account. The letter was sent on May 23rd and said that only a small amount of rupees had been converted into roubles for paying BPC. The letter further said that it was not possible for the company to wait indefinitely for Sberbank to process the transaction. IPL also warned that if the bank was unable to process the transaction, the company would withdraw its funds.

Moreover, the company also stated that they wanted the bank to respond to the letter within two days of the sending date. One of the sources revealed anonymously on Monday that the bank had failed to respond to IPL. Another source disclosed that the sanctions that there had been problems in processing the IPL payment in light of the sanctions that Moscow was facing from US and Western countries after its invasion of Ukraine. Since Russian banks do not have access to the SWIFT payment system anymore, settling payments in roubles has become difficult.

After the conflict with Ukraine began, Russia and India have had discussions about setting up a payment mechanism involving rupee and roublefor a smooth trade process. One proposal suggested that Russian firms and banks open up accounts with Indian banks for settling trade deals. Sergei Lavrov, the Russian Foreign Minister visited and April and said that a mechanism should be developed for avoiding the euro and dollar business. However, what is happening with IPL shows that any such mechanisms would still have challenges, even if they are able to avoid the use of euros and dollars.

Leave a Comment