The diamond polishing business in India may be among the sectors most affected by Indian banks’ decision to temporarily freeze fresh transactions with Russian institutions, bankers told FE. Russia is an important source of rough diamonds and some transactions for routing those diamonds to India for cutting and crafting into jewellery had already been initiated when the hostilities broke out, according to banking sources.

“Currently, those are on hold because we don’t know how these sanctions are panning out and the full details are still not out. Unless we read the original document that the US Treasury Department’s OFAC (Office of Foreign Assets Control) comes out with, we really don’t know what is there. We would look at that and then decide, but we have put these kinds of transactions on hold,” a senior banker with a large public sector bank said.

Apart from diamond imports, the other trade transactions that may be affected are sunflower oil imports into India, 90% of which come from Ukraine and Russia, crude oil imports from Russia, and the purchase of defence hardware by India, 60-70% of which is of Russian origin.

While the names of some banks are out, the exact nature of the sanctions is not yet clear, bankers said. Large Indian banks are exercising caution while dealing with them and are also coordinating with their correspondent banks, many of which are US banks. State Bank of India (SBI) has a presence in Russia in the form of a 60:40 joint venture with Canara Bank called Commercial Indo Bank, based in Moscow.

Quite a few transactions between Indian and Russian banks were channelled through US banks. “They used to run it past their compliance and Indian banks were quite happy to let such transactions go through at the US banks’ risk. Right now, all those banks are telling us that they have put everything on hold because they are awaiting the full text. As of now, most banks are in wait-and-watch mode,” the banker quoted above said.

Meanwhile, the Reserve Bank of India (RBI) last week sought a status check of Indian banks’ transactions with Ukraine soon after Russian forces launched military operations against the country.

While transactions that were already initiated may be allowed to go through, banks will wait before initiating fresh ones, the banker said. “In cases where transactions are already halfway through, they will be allowed to be completed, but banks have temporarily put fresh transactions on hold till they find out the full details of the sanction regime.”

Banks will now watch what their current transaction levels with Russian banks are and how, if the need arises for strategic reasons, they will continue with those.

Given the current scenario, no bank in India is looking to enhance its relationship with Russian banks or Russian entities, bankers said.