Sberbank sees big opportunity for CBDCs in India-Russia trade settlements

Sberbank, Russia's largest lender, envisions a substantial role for central bank digital currencies (CBDCs) in facilitating trade settlements between India and Russia, stated CEO Herman Gref on Friday. Central banks from both nations are developing a mechanism to streamline cross-border payments, making the process faster and more efficient, Gref added.

"Now is only the beginning. We see a huge opportunity for digital currency for all settlements between the countries," Gref remarked during a media briefing at the BRICS summit in New Delhi. He emphasized that digital currencies will see increased demand and rapid growth. "The Russian central bank and the central bank of India are working on this very precisely and we have tried to support them because we need this kind of instrument," Gref explained.

CBDCs can enhance bilateral trade by expediting cross-border payments and overcoming limitations of traditional systems like SWIFT. Gref highlighted the significant potential of CBDCs in boosting trade between India and Russia, noting that digital currencies are expected to experience heightened demand and accelerated growth. The trade between the two countries has surged due to India's increased imports of discounted Russian crude oil and commodities, which now account for the majority of bilateral trade, totaling approximately $60 billion.

Sberbank aims to serve as a conduit for Russian enterprises entering India and Indian businesses expanding into Russia, fostering greater economic engagement. Surplus Indian rupees, previously a concern, are now being effectively utilized by Sberbank to support its operations and investments in Indian government securities. This comes as India and Russia strive to improve their trade settlement methods.

Both BRICS nations are also working towards enhanced connectivity between their payment systems, potentially reducing reliance on conventional cross-border payment infrastructure such as the SWIFT network. The issue gained traction after major Russian banks were disconnected from SWIFT following Russia's 2022 invasion of Ukraine.

Russia initiated the rollout of its central bank digital currency, the digital ruble, through systemically significant banks, including Sberbank, on September 1. India launched its digital currency pilot in 2022. Gref also noted that the surplus Indian rupee issue Sberbank faced the previous year is no longer significant, as the bank now efficiently employs such liquidity.

The comments underscore the bank's improved operational efficiency. Sberbank is also pursuing substantial expansion in India. The lender has sought 10 branch licenses from the Reserve Bank of India to open branches across 10 cities, awaiting regulatory approval. Currently, Sberbank operates in India through branches in New Delhi and Mumbai.

Regarding a potential conversion of its Indian operations into a wholly owned subsidiary, Gref stated there is no immediate plan. Alongside branch expansion, Sberbank is establishing a larger business presence in New Delhi by acquiring two office buildings under construction, projected to be operational by 2028. The facility, with a total area of 48,000 square meters, will serve as Sberbank's headquarters and a business center for Russian and Indian companies seeking to expand bilateral trade.

The bank aims to leverage this platform for enhanced business cooperation. Sberbank is also developing a digital ecosystem to connect Indian and Russian businesses, including an IT platform created with major Indian companies to provide Indian firms with insights into Russian market opportunities, regulatory frameworks, and potential partners.

Sberbank aims to boost Indian exports to Russia and address a roughly $50 billion trade imbalance in Russia's favor. The bank anticipates servicing over 15% of total trade turnover between the two countries by year-end. India and Russia are targeting $100 billion in bilateral trade and $50 billion in two-way investment by 2030. Currently, bilateral trade stands at about $60 billion.

Gref highlighted Sberbank's interest in partnerships with India across various sectors, including financial services, technology, education, and healthcare. The bank has been active in India's financial business for 16 years, serving tens of thousands of corporate clients in the India-Russia business corridor, with its business in India growing at least tenfold over the past five years.