Indian corporates brace for delay in receivables, defaults as Russian rouble tanks

Indian corporates may face an elongated receivable cycle, or even default on payments by Russian importers due to the sharp fall in Russian Rouble, bankers said. The Russian Rouble fell nearly 30% on Monday against the US dollar after the country’s premier Vladimir Putin on Sunday ordered his nuclear forces to be on high alert in view of the evolving Russia-Ukraine conflict.

Separately, in view of the steep depreciation of its currency, the Bank of Russia on Monday decided to increase the key rate to 20% per annum from 9.50%, the sharpest rate hike since 2014, to compensate for the increased depreciation and inflation risks. “This is needed to support financial and price stability and protect the savings of citizens from depreciation,” the central bank said.

Indian companies have a significant presence in Russia. As per data by Indian embassy in Russia, bilateral trade between the two countries between April 2020-March 2021 amounted to $8.1 billion. Indian exports amounted $2.6 billion while imports from Russia amounted $5.48 billion. For the same period, as per Russian figures, bilateral trade amounted to $9.31 billion, with Indian exports amounting to $3.48 billion and imports amounting to $5.83 billion. Energy, fuel, pharmaceutical and infrastructure are some of the key sectors of investments by Indian corporates in Russia.

“In our view, if the contracts are denominated in dollar or Euros, then there should not be an impact on the cash flows of Indian Corporates, however, because of sharp depreciation of Russian currency, Russian importers may face challenges in terms of their payments for their export obligations,” said Anil Gupta, vice president and co-Group head at ICRA. This could lead to longer payment cycles for Russian companies, longer receivable cycle for Indian corporates, cancellation of contracts or even default by Russian importers, he said.

Worryingly, even if receivables are covered under insurance or letter of credits by other non-Russian banks, will the parties involved declare a force majeure because of an act of war also needs to be seen, Gupta added.