According to two persons with knowledge of the situation, roughly $8 billion is likely held by Russian exporters, including state-backed businesses, in Vostro accounts set up to facilitate trade in Indian rupees.
Due to the paucity of Russian investment prospects in India and ongoing currency rate volatility, some of the Russian money is invested in Indian assets, but the majority of it is still held in Vostro accounts.
A source close to Mint said, “it is difficult to say the exact amount in the Vostro accounts since some transactions are very complex. However, the figure is likely closer to $7-8 billion than $30-40 billion."
An account held by a local bank on behalf of a foreign bank is known as a 'Vostro account'.
The foreign bank can carry out transactions through its Vostro account, such as foreign exchange settlements, international payments, and domestic market investments.
Due to restrictions prohibiting such assets from being put in corporate debt, Russian funds (in rupees) have thus far been placed in Indian government treasury bills.
After a sharp increase in the trade deficit resulted in bigger surpluses in the Vostro accounts.
According to a second source that spoke to Mint, Russia is trying to invest in various Indian government assets because it is currently not possible to repatriate funds.
“Russia would ideally like to invest in new technologies. But, much of the intellectual property rights of these technologies are with the West (especially the US). So, it is investing in government securities," the person added.
The Reserve Bank of India (RBI) permits the investment of excess balances from Vostro accounts in treasury bills, government securities, and payments for projects and investments.
The Russian investments, according to experts, are most likely in short-term government securities because their exporters want to withdraw the funds that are currently in India as soon as possible.
Moscow has quickly climbed to become India's fourth-largest exporter since the start of the Ukraine-Russia war, largely due to its oil shipments.
India's imports from Russia increased by over five times in the most recent fiscal year, reaching $46.2 billion. Payment problems, however, continue to constitute a barrier between India and Russia.
For the purpose of facilitating two-way trade in the face of Western sanctions, the RBI has granted 34 applications from Russian banks to open rupee accounts with Indian banks.