NEW DELHI, March 13 (Reuters) - India has asked banks
and traders to avoid using Chinese yuan to pay for Russian
imports, three government officials involved in policy making
and two banking sources said, because of long-running political
differences with its neighbor.
India, which has emerged as a top buyer of Russian oil as
well as discounted coal, would prefer the use of United Arab
Emirates dirhams to settle trade, three government officials
One of the government officials directly involved in the
matter said New Delhi is "not comfortable" with foreign trade
settled in yuan but said settlement in "dirham is okay."
The second official said that India cannot allow settlement
in yuan till the relations between the two countries improve.
Thousands of Indian and Chinese troops are locked in a
standoff along their disputed Himalayan border since 2021,
casting a shadow over the whole relationship.
The five officials did not say whether there were also
economic reasons behind India's reluctance to accept yuan
Last year India's biggest cement producer UltraTech Cement
used Chinese yuan for a cargo of Russian coal, which
raised some concerns among officials as relationship between
India and China has deteriorated after deadly border clashes in
2020 in the remote Galwan Valley of Ladakh.
The government reviewed the situation with officials of the
central bank and bank executives, following the UltraTech deal,
the second official said.
Two banking officials, aware of the matter, said the Reserve
Bank of India (RBI) is not keen on foreign trade settlement in
yuan, and confirmed that the government has discouraged them
from using the currency.
They also said Russia was keen on yuan settlement as it
helps them in purchases of goods from China.
For Indian refiners that in recent weeks started settling
some Russian oil purchases in roubles, as Reuters reported,
payments have been processed in part by the State Bank of India
via its nostro roubles account in Russia.
But the bulk of the trade is still in other currencies
as the rouble is partially convertible and the two countries are
yet to finalize a framework.
All five officials declined to be named as discussions were
private. India's foreign, finance ministry and RBI did not reply
to requests seeking comment.
The government expected majority of payments to Russia in
dirhams in the coming months, the first official said.
India has longstanding political and security ties with
Russia and has refrained from condemning the Ukraine war, which
Moscow calls a "special military operation."
India is also a major buyer of Russian arms.
Indian refiners, in the meanwhile, have begun paying for most
of their Russian oil bought via Dubai-based traders in dirhams
instead of U.S. dollars, Reuters reported last month.
India's rupee is partially convertible, which means it has
to be converted to U.S. dollars first before converting to any
other currency, making it an unattractive reserve currency for
global central banks and for settling trade.
It also makes Russia reluctant to accept payment in the
Indian currency for its exports.
(Additional reporting by Mayank Bhardwaj in New Delhi, Swati
Bhat and Siddhi Nayak in Mumbai
Editing by Tomasz Janowski)