Russian surpluses with Indian banks said to be flowing into local Gsecs

India has been importing discounted oil from Russia since the Ukraine war, leading to a large trade surplus for Moscow with New Delhi.

While the exact quantum of funds flowing to Indian sovereign debt is not in the public domain, bond traders pointed to an increase in the ownership pattern of the ‘others’ category of government securities as an indicator.

Latest Reserve Bank of India (RBI) data show that the ownership of government securities of the ‘others’ category climbed to 7.55% of outstanding stock in the quarter ended December 2022, versus 6.15% in the quarter ended March 2022.

In absolute terms, the quantum of investment of the ‘others’ category has risen from ₹5.2 lakh crore in the quarter ended March 2022 to ₹7.1 lakh crore in the quarter ended December 2022.

The RBI does not specify the entities that make up the ‘others’ category. According to traders, entities such as some non-banking financial companies, certain pension institutions and organizations like temple trusts are also included in the category.

Bank treasury executives also said that a portion of the Russian funds lying in domestic current accounts were also being invested in government securities such as Treasury Bills.Sources said that foreign central banks and some categories of individuals are also included in the ‘others’ category.

While state governments have a separate category, they are also included in the ‘others’ category, according to the RBI data. According to sources, only about 0.2% of the ‘others’ category is made up of state government investments.

On Saturday, reports quoted Russian foreign minister Sergey Lavrov as saying that Russia has amassed billions of rupees in Indian banks. Moscow cannot use the money as the rupees must be transferred to another currency.

India’s imports from Russia rose five times to $41.56 billion from April to February of 2022-23.

In July 2022, when the RBI outlined the norms for international trade settlements in rupees, the central bank said that rupee surplus balance held may be used for permissible capital and current account transactions in accordance with mutual agreement.

The balance in special vostro Accounts can be used for payments for projects and investments, export-import flow management and investment in government treasury bills and government securities.

“The issue really is that to increase any sort of rupee settlement agreement that may be there, you have to look at the bilateral trade relationship,” HDFC Bank Principal Economist Sakshi Gupta said.