Russian Gazprombank opens account with UCO bank

Tags: Economy/Finance

The Russian bank Gazprombank has opened a Special Vostro Account with the Kolkata based UCO bank. UCO bank was the first Indian bank to get permission from the Reserve Bank of India (RBI) to provide such a facility to settle international trade in Indian rupees.

Why UCO bank has been chosen 

Gazprombank is the third largest bank in Russia and has been set up by the world's largest gas producer and exporter Gazprom.  Gazprom has not been included into the Specially Designated Nationals list of the United States but only faces sectoral sanctions.  

The United States imposes sanctions on companies or banks which deal with the companies included in its sanctions list.  A company which faces US sanctions finds it very difficult to conduct business in the world as the world financial market is dominated by American financial institutions.

UCO banks have minimal international presence and there will be little or no impact on its business even if the United States imposes sanctions on it.

Earlier when sanctions were imposed on Iran by the United States, UCO bank was chosen by the government to conduct trade with Iran.

Special Vostro Account

The Indian government is keen to promote Indian rupee for settlement of International Trade and to lessen dependence on the American dollars. RBI on 11 July 2022 permitted the use of a special Vostro account for settlement of international trade (export and Import) in India Rupee.

Under this mechanism foreign banks of a country will open a special Vostro account with an Indian bank. 

Suppose the Indian bank is SBI and foreign country is Russia and the Russian Bank is Gazprombank.  An Indian businessman buys gas from a Russian company for Rs 200. The amount will be deposited in the Gazprombank account with SBI.  

A Russian company buys Rs 125 worth of Tea from an Indian company.

Then Rs 125 will be deducted from the Rs 200 deposited in the Gazprom bank account with the SBI.

RBI says that the balance Rs 75 amount can be invested in the government securities.

Here the whole trade is being conducted in Indian Rupee and the settlement is also being done in Indian Rupee.

What is Nostro and Vostro bank account? 

The key word to understand Nostro and Vostro is that Nostro means Ours and Vostro means Yours in Latin.

Nostro account 

It is a bank account which is opened by a bank with a foreign bank in the foreign country’s currency. 

Vostro accounts 

It is a bank account which a bank holds of other foreign bank in local currency.

Explanation 

Nostro and Vostro accounts are the same bank account but two terms are used to explain it.

E.g. suppose SBI goes to London and opens an account with HSBC bank branch in London. While opening the account SBI has to deposit some money in its account. The money will be in pound sterling which is the currency of Britain.

 SBI will tell HSBC that “our” account is with you. HSBC will say to SBI “Yours” account is with us. It is the same bank account but HSBC and SBI are using different terms to describe it. 

Here SBI has used the word Ours, it means the SBI account with HSBC is a Nostro account.

HSBC has used the word ‘Yours’ so for HSBC the SBI account is Vostro account.

Thus the Gazprombank account with UCO bank is a Vostro account because UCO banks is saying to Gazprombank that ‘your’ account is with us.   

UCO Bank 

It was founded by Ghansyham Das Birla as United Commercial Bank ltd. on 6 January 1943 at Kolkata (then Calcutta).

It was nationalized in 1969 and its ownership passed into the hands of the Government of India.

Its name was changed to UCO Bank in 1985.

Its overseas branches are in Singapore and Hong Kong.

Headquarters: Kolkata 

Managing Director (MD) and Chief Executive Officer (CEO) : Soma Sankara Prasad

Tagline: Honours Your Trust