A year ago, there was palpable excitement in New Delhi around buying Russian crude. The Reserve Bank of India allowed foreign banks to open special rupee accounts with local lenders to encourage trade settled in its home currency. Moscow-based Sberbank and VTB Bank were the first to come on board. The idea was that importers would credit these accounts, whose surplus could be invested in Indian government bonds.
For sellers of Russia’s flagship Urals crude in the spot market, avoiding dollar clearance meant bypassing the Western banking system and sanctions. Yet, the plan hasn’t really worked. Russia’s banks are reluctant to accumulate balances with lenders in India in a non-convertible currency that has lost half its value against the dollar over the past 15 years. Throw into the calculation an expected annual rate of 3% to 4% currency depreciation, and earning a 7% yield on a 10-year rupee bond doesn’t seem like such a big draw.
