UCO Bank says Iran, Russia rupee trade channels remain open within sanctions

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State-run UCO Bank says it continues to facilitate sanctions-compliant rupee trade with banks in Iran and Russia, underscoring the continued role of India's alternative payment channels as geopolitical tensions reshape global trade.

“We are doing only compliant business. Whatever transactions are permitted under sanctions, FEMA and regulatory guidelines, only those are being undertaken,” UCO Bank's acting managing director and chief executive Rajendra Kumar Saboo told Mint in an interview following the bank's Q1FY27 results.

The lender continues to maintain Special Rupee Vostro Accounts (SRVAs) for Russian banks under the Reserve Bank of India's (RBI) framework, while rupee vostro accounts for certain Iranian banks remain operational for humanitarian trade, including food and medicines, and other non-sanctioned items, Saboo said.

“There are no non-permitted transactions. Whatever business we undertake is fully compliant,” he said.

Special Rupee Vostro Accounts allow overseas banks to settle trade in rupees rather than through conventional dollar-based payment systems. The mechanism gained prominence after Western sanctions and restrictions on Russia's access to the SWIFT financial messaging system prompted India to expand alternative settlement channels.

UCO Bank has long been one of India's key banks for facilitating rupee trade settlements with Iran through vostro accounts. It also began opening Special Rupee Vostro Accounts (SRVAs) for Russian banks in 2022 to facilitate rupee-based trade after Western sanctions and restrictions on Russia's access to the SWIFT financial messaging system. By mid-2023, the bank had opened multiple such accounts.

Saboo declined to disclose the value of transactions through the Iranian accounts, saying the volumes are “very limited”.

According to government data, India-Iran bilateral trade stood at $2.33 billion in FY23, comprising India's exports of $1.66 billion and imports of $670 million. India's exports to Iran primarily include rice, tea and pharmaceuticals, while imports consist largely of chemicals and dry fruits. Bilateral trade has continued despite international sanctions, with transactions restricted to goods permitted under the prevailing sanctions framework.

On Russia, Saboo said the bank continues to operate SRVAs under the RBI framework and processes only those transactions permitted under prevailing sanctions and regulatory norms.

India-Russia bilateral trade touched a record $68.7 billion in FY25, driven largely by India's imports of crude oil and petroleum products, while India's exports stood at around $4.9 billion, according to data from commerce department.

On 5 June, the RBI allowed banks to raise fresh and renewed FCNR(B) deposits with maturities of three to five years and swap the proceeds with the central bank at a concessional rate. The scheme was introduced to strengthen India's balance of payments, support the rupee and encourage stable foreign currency inflows amid heightened global uncertainty. Banks had mobilized $17.41 billion through FCNR(B) deposits as of 17 July, according to RBI data.

Against this backdrop, Saboo said UCO Bank expects to mobilize around $500 million through FCNR(B) deposits and Overseas Foreign Currency Borrowings (OFCB) combined under the special FCNR(B) deposit mobilization drive announced by the government and the RBI.

The additional foreign currency inflows will strengthen the bank's domestic liquidity as FCNR(B) deposits can be swapped with the RBI under the special swap window to obtain rupee liquidity, he said.

As part of its international expansion strategy, UCO Bank expects to commence operations at its GIFT City branch within the next month after completing regulatory approvals and IT implementation.

Drawing on its experience from overseas operations in Singapore and Hong Kong, the bank expects the GIFT City branch to build business o...