Stuck Russian funds land in India’s T-bills

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RBI) norms, excess balances can be invested in payments for projects and investments, government treasury bills and government securities. While the quantum of investment is not available publicly, the $10-12 billion figure is an estimate provided by industry executives dealing in trade and settlements. Treasury bills (T-bills) are short-term debt instruments issued by the government.

In July last year, RBI announced a mechanism allowing local traders to settle imports and exports in rupees. Under the mechanism, Indian importers can make payments in rupees that will be credited to the vostro account of the correspondent bank of the partner country. Similarly, Indian exporters will be paid the proceeds in rupees from the balances in the vostro account.

“The quantum of oil imports from Russia has substantially gone up, leading to higher rupee balances in vostro accounts of Russian exporters. Given that excess balances can only be invested in sovereign securities and not in corporate debt, it is likely moving into T-bills," said Venkatakrishnan Srinivasan, managing partner, Rockfort Fincap Llp, a financial advisory firm. That is because, Srinivasan added, treasury bills have a shorter investment horizon than dated securities.

India imported crude worth $31 billion from Russia in FY23, as against $2.5 billion in the previous year and $900 million in FY21, data from the commerce ministry showed. Aggregate imports jumped almost five times from the previous fiscal year as India purchased huge quantities of crude from Russia, which faced multiple sanctions—being barred from the SWIFT payment system and seeing its forex reserves frozen—after it invaded Ukraine in February last year. This led to the widening of the trade deficit