The Indian authorities can expand the list of assets into which it will be possible to invest multi-billion dollar “surpluses” in Vostro accounts in rupees, which are now largely unused, including funds from Russian companies. Experts call the measure timely given the strictness of local currency regulation. But they emphasize that the changes do not solve the main problem of foreign companies operating in India, namely the issue of repatriation of revenue.
India may allow vostro account funds to be invested in corporate bonds to boost cross-border rupee settlements. The Economic Times (ET) wrote on November 10 that this option was being considered, citing an unnamed official. Currently, funds from these accounts can only be invested in government bonds and treasury bills. The discussion about including corporate bonds in the list has been going on for months.
The Special Rupee Vostro Account (SRVA) was launched in the summer of 2022 for international payments in Indian currency. Its discovery requires approval from the Indian regulator. According to local media reports, 34 applications from Russian banks were approved during the year (Sberbank and VTB were among the first). In September, Russian Foreign Minister Sergei Lavrov spoke about the problem of multi-billion-dollar funds in rupees stuck in the accounts of Russian companies. The total amount of funds found in this situation is not disclosed. ET gives an estimate of $7-8 billion.
“The opportunity to invest surpluses from Vostro accounts in Indian corporate bonds will primarily have a positive impact on the corporate sector in the form of increased income from the placement of funds frozen in SRVA. Corporate bonds have a higher yield compared to government bonds,” says Rustam Mirzabalayev, an expert in the department of treasury and market risks at Trust Technologies.
However, one of Kommersant’s interlocutors in the financial market clarifies that “the liquidity of government bonds is higher and there must be a desire to take corporate credit risk, which companies are often not ready to do.” According to him, the measure is more like “another progressive step towards liberalizing foreign exchange regulations, which began last year.” On average, the yield on Indian bonds is 7.3% per annum, notes the CEO of Arikapital Management Company Alexey Tretyakov: “Taking into account the constant devaluation of INR – by 3% per year over the past five to ten years – this leaves the yield in dollars lower than on the benchmark American government bonds.”
“Investing part of free liquidity in Indian corporate bonds will allow banks to expand sources of income in the context of international sanctions, when the financial markets of developed countries have become inaccessible to Russia,” insists Mr. Mirzabalayev. “In addition, such operations, as a rule, work in favor of increasing credit ratings banks, which is important at the initial stage of their penetration into the Indian market.” According to Sberbank, the theoretically discussed measure could really help: “But how it will work in reality is difficult to say, everything will depend on demand.”
For the Indian side, says Mr. Mirzabalayev, “expanding the range of available financial instruments for Russian companies will help increase investment in the Indian economy and can become another platform for the development and strengthening of mutual economic relations and business ties between Russia and India”, which will also have a positive impact on the expansion of trade.
“Previously, everything rested on the fact that it was possible to withdraw money only through investments in government bonds and treasury bills, which, of course, was not suited Russian suppliers who wanted real money,” notes Denis Primakov, head of the sanctions law and compliance practice at KIAP AB. But the current changes, in fact, will not solve this problem. From the point of view of the local foreign exchange market, emphasizes Alexey Bulgakov, head of the debt market analytics department at Renaissance Capital, “it doesn’t matter in what form the funds of exporters or their traders are located abroad and are not repatriated.”
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