Why SBI has paused transactions for Russia-backed Nayara Energy
What's the story
The State Bank of India (SBI) has halted trade and foreign currency transactions for Nayara Energy, amid fears of US sanctions after recent tariff hikes. The decision is aimed at shielding SBI from potential restrictions by the US and European Union. The move comes after EU sanctions banning Russian fuel imports and capping prices on Russian crude oil, affecting banks with global operations.
Compliance measures
No government directive behind SBI's decision
A source familiar with the matter revealed to Economic Times that SBI's decision was taken recently, in light of US sanctions, to ensure compliance with international regulations. The source said there was no government directive but every bank has to decide how to deal with such issues. The Rosneft-led acquisition of Essar Oil's Vadinar refinery in August 2017 led to the formation of Nayara Energy.
Business overview
Nayara Energy's market share and operations
Nayara Energy, which imports crude oil from abroad, now commands a market share of about 8% of India's refining output. The company also has over 6,500 fuel pumps across the nation. Like Reliance Industries, Nayara imports crude oil, and then refines it into usable fuels like petrol and diesel for markets in Europe and the Middle East as well as India.
Regulatory challenges
EU sanctions on Russia affect Nayara's operations
Nayara's troubles began in July when the European Union imposed its 18th sanctions package against Russia, restricting fuel imports from the country and capping prices on Russian crude oil at $47.6 per barrel. The source said these European sanctions were the last straw for banks with international branches and operations, making it difficult to process transactions for Nayara.
Market impact
Nayara approaches Centre for alternative solutions
With SBI, India's largest bank by assets, halting its dealings with Nayara, it is unlikely that other lenders would process deals for the firm. Last week, Bloomberg had reported that Nayara has approached Indian government officials to broker a relationship with a domestic lender like UCO Bank, for special arrangements to process international transactions. UCO is believed to be able to ignore sanctions due to its limited international presence.