According to an invoice reviewed by Reuters and a source, an Indian cement producer recently purchased Russian coal using yuan from India’s largest private lender, HDFC Bank, as further details surface of the type of commerce that could mitigate Western sanctions against Moscow.
There is no indication that the purchase, the details of which were not previously published, violates any of the restrictions placed on Russia following its invasion of Ukraine.
Despite limitations aimed at keeping Russia out of financial markets, the paper demonstrates one way in which Russia might continue to export commodities abroad without settling in US dollars.
HDFC Bank-supported cement maker Ultratech’s purchase of Russian coal from producer and trader SUEK for 172.7 million yuan ($25.74 million), according to an invoice dated June 5 and a source familiar with the case.
According to the invoice, the letter of credit for the transaction was issued by HDFC Bank’s Mumbai suburban branch in Andheri East.
The dollar remains the currency of choice for global raw material commerce, but some merchants believe the yuan will be more utilised to settle payments for Russian supply.
In the invoice, SUEK requested that Ultratech transfer 172.7 million yuan to SUEK’s account at China Everbright Bank’s Shanghai office. The correspondent bank is listed as the Hong Kong branch of international lender HSBC.
A correspondent bank function as a go-between when money is transferred from one bank to another. Reuters was unable to determine whether China Everbright had received a payment or whether HSBC or any other bank was involved in a fund transfer.
There were no comments on the issue from HDFC Bank, HSBC, Ultratech, SUEK and China Everbright Bank.
The invoice did not specify which currencies were utilised to make the yuan payment. The amount indicated was in Chinese yuan, and Reuters reported last week that Ultratech acquired 157,000 tonnes of coal from SUEK, which is registered in Switzerland, and agreed to repay the final payment in that currency. more info
Such payment techniques may become more popular in India as it strives to preserve commercial connections with Russia for commodities such as oil and coal without risking violating Western sanctions.
India maintains close political and security connections with Russia and has refrained from denouncing the Ukraine conflict, which Russia describes as a “special military operation.”
India’s imports of Russian energy have recently increased as traders, unable to sell into many Western markets, have offered huge discounts.
New Delhi defends its imports of Russian commodities, claiming that they are legal and that an abrupt halt would cause prices to rise even further, harming consumers.
Greater use of the yuan to settle payments might help protect Moscow from sanctions while also bolstering Beijing’s ambition to further internationalize the yuan and undermine the US dollar’s dominance in global trade.
However, it is still uncommon for an Indian corporation to agree to settle trade with a non-Chinese company in yuan. In the absence of sanctions, foreign payments to Russian commodity and energy firms would normally be done in dollars via SWIFT to Russian accounts.
Lenders might theoretically send dollars to foreign banks with significant yuan reserves, or Chinese banks with which they have tie-ups, in return for yuan to settle Indian commerce.
The invoice included the SWIFT transaction IDs for both the HSBC Hong Kong and China Everbright Shanghai branches. Reuters was unable to confirm whether any payments were made using the SWIFT platform.
SWIFT is a secure messaging system that enables quick cross-border payments and smooth international trade. In recent months, several Russian banks have been disconnected from the system.
“As a matter of policy, SWIFT does not comment on flows between institutions,” a spokesman said.
Even after a deadly military border conflict between the two countries in 2020 that ratcheted up tensions that have yet to decrease, India’s bilateral trade with China has thrived.
Over security concerns, New Delhi has boosted its scrutiny of Chinese investments and imports, as well as prohibited some mobile apps.
According to Reuters, the Indian government and central bank were aware of prospective payments for Russian goods in Chinese yuan. The government and central bank did not respond to requests for comment for this article.