Banking freeze on Russian deals to hit rough diamond import deals

The diamond polishing business in India may be among the sectors most affected by Indian banks’ decision to temporarily freeze fresh transactions with Russian institutions.  Meanwhile, ALROSA, Russia’s partly state-owned mining giant that alone accounts for nearly 30% of global diamond output and is a major supplier to India, has told gems and jewellery players that there are no curbs on its transactions in dollars, euros or other currencies, and that settlements with foreign partners continue “as usual”.

In a letter to the state-backed Gem & Jewellery Export Promotion Council (GJEPC), ALROSA has informed that diverse banking partners allow the company “to operate normally” and that it will honour its obligations. 

Russia is an important source of rough diamonds and some transactions for routing those diamonds to India for cutting and crafting into jewellery had already been initiated when the hostilities broke out, according to banking sources.

Apart from diamond imports, the other trade transactions that may be affected are sunflower oil imports into India, 90% of which come from Ukraine and Russia, crude oil imports from Russia, and the purchase of defence hardware by India, 60-70% of which is of Russian origin.

Large Indian banks are exercising caution while dealing with them and are also coordinating with their correspondent banks, many of which are US banks. State Bank of India (SBI) has a presence in Russia in the form of a 60:40 joint venture with Canara Bank called Commercial Indo Bank, based in Moscow. Quite a few transactions between Indian and Russian banks were channelled through US banks. As of now, most banks are in wait-and-watch mode.

Meanwhile, the Reserve Bank of India (RBI) last week sought a status check of Indian banks’ transactions with Ukraine soon after Russian forces launched military operations against the country. While transactions that were already initiated may be allowed to go through, banks are likely to wait before initiating fresh ones. Banks will now watch what their current transaction levels with Russian banks are and how, if the need arises for strategic reasons, they will continue with those. Given the current scenario, no bank in India is looking to enhance its relationship with Russian banks or Russian entities, bankers said.

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