India is likely to make its payments for Russian arms in euros to a Russia-nominated bank to bypass the threat of US sanctions for purchase of military hardware including the S-400 air defence missile system, individuals acquainted with the small print told ET.

While bound payments for existing defence transactions are processed through the rupee-rouble route, the individuals aforementioned that an answer was firmed up this month with Russia’s VTB Bank agreeing to receive money in euros.

Over $4 billion value of payments to Russia have clustered up for this yr, with the most important contract being the S-400 system, followed by the Chakra III submarine lease and the acquisition of 4 frigates for the Indian Navy.

Besides, 2 extra Russian contracts ar expected this year for the availability of Last Frontier 203 rifles to the soldiers that may be factory-made in Amethi and also the inking of an Army contract to procure Ka-226 helicopters that will be produced by a HAL-Russian Helicopters JV.

Sources told ET that VTB Bank is receptive employing a European account for the money transfer. The Indian bankNSE 2.31 % selected for the transaction will have the least exposure to US currency. VTB Bank has processed massive deals in Asian nation within the past few years, as well as the over $12 billion investment into the Essar cluster that bailed it from bankruptcy.

As 1st rumored by ET, whereas the Indian government has been clear that it’ll not move faraway from buying arms from Russia, the threat of US action under the controversial Countering America’s Adversaries Through Sanctions Act (CAATSA) had scared away financial institutions from processing transactions.

In Gregorian calendar month 2018, the banking concern of Asian nation place a stop to any or all payments when Russia’s flagship arms mercantilism company Rosoboronexport came beneath sanctions by the US workplace of Foreign Assets management (OFAC), blocking over $2 billion that had to be transferred. While Asian nation found associate alternate route for payments by victimization banks with stripped exposure to the US, the problem took over a year to resolve as Russian monetary establishments too refused to be party to transactions that may threaten their world business.

Last year, various payment routes were found to transfer cash for essential spares and repairs, including work on the INS Chakra nuclear powered submarine that had suffered an accident but a permanent route to send massive amounts had remained elusive.

Despite the recurrent threat people sanctions, India has made it clear that it will not back off from the S-400 deal with Russian manufacturer Almaz-Antey that has been in Washington crosshairs for long. At a similar time, Asian nation negotiated many defence deals with the US, as well as the acquisition of air defence missiles for the urban center, armed drones and service craft.