To avoid the threat of US sanctions for the purchase of Russian military hardware, India is likely to make its payments for Russian arms in euros to a Russia-nominated bank, reports The Economic Times.

The move comes as an alternative payment system for the defence equipment as the threat of US action under the controversial Countering America’s Adversaries Through Sanctions Act (CAATSA) has scared away financial institutions from processing these transactions.

Sources told the paper that a solution was firmed up this month with Russia’s VTB Bank agreeing to receive payments,worth $4 billion are remaining for this financial year, in euros. These include payments for the S-400 air defence missile system, a lease on the Chakra III submarine and four frigates to be procured for the Indian Navy.

Two additional Russian contracts- one for the supply of AK 203 rifles to the armed forces that will be manufactured in Amethi, and the other, an Army contract to procure Ka-226 helicopters, which will be produced by a HAL-Russian Helicopters JV.

The Russian bank is open to using a European account for the transaction and Indian Bank, selected for the transaction, will have the least exposure to US currency. In the past few years, VTB Bank has processed large deals in India like the over $12 billion investment into the Essar Group, bailing it from bankruptcy.

India on June 26 told the US that it will go by its national interest on S-400 missile deal with sanctions-hit Russia, its strong stance conveyed by External Affairs Minister S Jaishankar to his American counterpart Mike Pompeo during their wide-ranging meeting.

In April last year, after Russia’s flagship arms trading company, Rosoboronexport, came under sanctions from the US Office of Foreign Assets Control (OFAC), the State Bank of India put a stop to all payments, blocking over $2 billion that had to be transferred. India found an alternative payment route, using banks with little exposure to the US. However, the issue persisted for over a year as Russian financial institutions also refused to be a part of transactions that could jeopardise their global business.