Report: Russia Seeks Reversion to Paper LCs with India

As an alternative to use of SWIFT for the sending of letters of credit, the Bank of Russia and Reserve Bank of India (RBI) are engaged in talks to discuss the viability of reverting to paper LCs as a means of Russia ensuring “uninterrupted exports from India through a state debt rupee mechanism”, according to 6 May 2022 reporting by India’s The Economic Times (ET).

According to ET sources, Russian representatives have supplied RBI with album of signatures by Russian banks and dignitaries that, if validated, could aid RBI in the process of authenticating paper LCs. “If the practice of physical hard copy or paper LC is revived and accepted by the RBI soon, it will support the state credit debt rupee mechanism, which in turn holds huge potential for Indian exporters, particularly after the global economic sanctions on Moscow,” said Sachin Bhansali, director of Girnar Food & Beverages, as quoted by ET.

As explained by ET based on its sources, the state credit mechanism dates back to when the Soviet Union supported India by supplying essential items needed for infrastructure, energy and defense.

After the USSR dissolved, an agreement was struck between the two countries regarding a sovereign loan taken by India whereby India kept repaying in rupees to an RBI account held by VEB Bank, the Russian development bank. Sources familiar with the arrangement say the repayment term will end by 2037.

Awaiting the outcome of negotiations between government officials, Indian exporters remain anxious. “Payments are not coming against the goods shipped already”, Mohit Agarwal, director, Asian Tea Company told ET. “We had shipped teas on rupee LCs confirmed by the RBI. Now the Indian banks are not willing to handle the documents on the goods that are already on the high seas.”