As Western sanctions isolate Russia from much of the global economy, a notable shift is occurring in its trade relations with India. Sberbank, Russia’s largest lender, reports a significant surge in its business dealings in India, positioning the country as a crucial partner amid ongoing geopolitical tensions. Despite being under heavy sanctions that restrict its access to Western financial systems, Sberbank has navigated these challenges by expanding its operations in India and facilitating a booming trade relationship between the two countries.
Trade Flourishes Despite Sanctions
Since 2022, following Russia’s invasion of Ukraine and subsequent Western sanctions, Russia has faced considerable barriers in its trade with Western nations. In response, Russia has strengthened economic ties with alternative markets, with India emerging as a key partner. According to Anatoly Popov, Deputy CEO of Sberbank, Russia’s trade with India nearly doubled to $65 billion in 2023. This growth has been fueled by India’s status as a major importer of Russian oil, stepping up purchases that Western countries have largely abandoned due to sanctions.
Sberbank is crucial in enabling this trade, managing payments for up to 70% of Russia’s exports to India. Despite the challenges posed by Western sanctions—which have cut Sberbank off from transactions in U.S. dollars and euros and barred it from using the SWIFT international payments system—the bank has reported no disruptions in its operations in India. “Sberbank actively participates in all Indian payment and interbank systems. There are no restrictions on its operations,” Popov noted, highlighting the seamless nature of bilateral trade relations.
India: A Strategic Market for Sberbank and Russia
The surge in trade between Russia and India reflects a broader strategy by Moscow to diversify its trade partnerships and mitigate the impact of Western sanctions. In 2022, there was a notable increase in interest from Russian businesses in the Indian market, as it provided an alternative to more restricted markets in the West. Sberbank’s presence in India is expanding rapidly, with offices in Delhi and Mumbai, and a technology hub in Bangalore. The bank increased its staff in India by 150% this year, highlighting its commitment to growth in the region.
India’s appeal as a trade partner goes beyond necessity. As the world’s fifth-largest economy, India is a self-sufficient, vast market capable of supplying a wide range of goods that Russia needs. Popov highlighted that India is a large, self-sufficient economy capable of fulfilling its own needs. Therefore, any goods that Russia previously imported can be purchased in India.” This sentiment captures the strategic importance of India for Russia, which is actively seeking alternatives to Western markets for its imports and exports.
Rupee-Rouble Payments: A Smooth Process for Sberbank
One of the key challenges Russia faced in its new trade partnerships was finding alternative payment mechanisms outside of the traditional dollar-euro paradigm. In the case of India, Sberbank has successfully navigated these challenges by conducting transactions in local currencies—Russian roubles and Indian rupees. This shift has proven effective, with 90% of transactions being completed within a few hours, a stark contrast to the complexities experienced with other countries like China.
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Initially, the burgeoning trade created a rupee surplus for Russian companies, as the volume of rupees accumulated from exports outstripped what could be used to pay for imports from India. However, this issue has now been resolved, with Indian exports to Russia increasing to balance the trade equation. Popov stressed that for a more balanced trade relationship, India’s exports to Russia would still need to increase significantly, potentially by tenfold. Nevertheless, the problem of rupee surplus has largely dissipated, with recent reports indicating that the surplus has dwindled to just a few million dollars.
Sberbank’s Financial Innovation and Regulatory Support
Sberbank’s ability to adapt to the new economic reality is further evidenced by its innovative use of financial instruments and support from Indian regulators. The bank has introduced rupee-denominated loans and hedging products such as forwards and options, providing Russian businesses with more flexibility in managing currency risks. Additionally, the use of rupee-denominated “vostro” accounts—domestic accounts that Indian banks can hold on behalf of foreign banks—has facilitated smoother operations.
Popov expressed gratitude to Indian regulators for their cooperation, stating that the current mechanism of converting roubles to rupees is functioning well without requiring any third-party currencies. Moreover, Sberbank is advocating for stock exchange trade in rupees to further enhance transparency and efficiency in bilateral trade.
A Strategic Economic Partnership
The evolving trade dynamics between Russia and India highlight a strategic realignment in response to global geopolitical changes. India’s neutral stance on the Russia-Ukraine conflict and its decision not to participate in Western sanctions have positioned it as a vital trading partner for Russia. As the two countries continue to deepen their economic ties, Sberbank plays a crucial role in providing financial services that support this growing relationship.
Sberbank’s success in India illustrates how Russia is adapting to the challenges posed by Western sanctions. By leveraging India’s vast market potential, efficient local currency transactions, and regulatory support, Sberbank and Russia are building a resilient economic partnership that could have far-reaching implications for both countries’ futures.
