Russian firms investing rupee surplus in govt bonds

Russian banks and companies that have trade surpluses with Indian lenders are using those funds to invest in government bonds, according to Sunil Mehta, chairman of the Indian Banking Association (IBA).

“The Reserve Bank of India (RBI) has opened the window for investing in government bonds with whatever trade surplus they have,” Mehta said on the sidelines of the Fintech Festival India event. Initially, the Russian entities are investing in short-duration bonds.

“When making any investment, initially, you would opt for shorter durations because you don’t know how long this crisis will last. If the international economy clears up in three years, they can consider whether the Indian market is more rewarding or abroad,” he said. He added that these Russian entities have the advantage of easy liquidity if they invest in Indian bonds.

Recently, Russia’s foreign minister Sergei Lavrov stated that Russia has accumulated billions of rupees from Indian banks that it cannot use.

Separately, Mehta said the IBA has requested the Reserve Bank of India (RBI) for more time to prepare for the expected credit loss-based provisioning model.

“The banking sector is already geared up, and a few banks have already developed their systems and put their data in place on which they can design their ECL-based risk models. We hope the system adopts it quickly,” Mehta said, adding that the IBA has requested one more year from the RBI.

Earlier this year, the central bank proposed, in a discussion paper, to transition from an “incurred loss” model to an “expected credit loss” model for loss provisioning.

At a time when the central bank has been advocating for the adoption of environmental, social and governance (ESG) norms, Mehta argues that there must be a sectoral approach.

He stated that the main objective is to understand how the international ESG framework can be customised to Indian requirements. The most important aspect is creating a system to define “green” in relation to various sectors since all sectors cannot be treated in the same manner.