Indian government has asked banks and traders to avoid using Chinese yuan in payments for Russian imports, as political differences between New Delhi and Beijing continue. India, which has emerged as a top buyer of Russian oil as well as coal, is willing to use UAE dirhams in trade for its Russian imports. Government officials said New Delhi is “not comfortable” with foreign trade settled in yuan but said settlement in “dirham is okay.” They further said that India cannot allow settlement in yuan till the relations between the two countries improve.

Since 2021, thousands of Chinese and Indian troops have been locked in a standoff along their disputed Himalayan border, casting a shadow over their relationship.

The officials did not say whether there were also economic reasons behind India’s reluctance to accept yuan settlement.

Last year, India’s biggest cement producer UltraTech used Chinese yuan for a cargo of Russian coal, which raised some concerns among officials as relationship between India and China has deteriorated after deadly border clashes in 2020.

The government reviewed the situation with officials of the central bank and bank executives, following the UltraTech deal.

The Reserve Bank of India (RBI) is also said not to be keen on foreign trade settlement in yuan, and confirmed that the government has discouraged them from using the currency, despite Russia’s willingness as it helps them purchase Chinese goods.

Although some Indian refiners have started settling some Russian oil purchases in roubles in recent weeks, the bulk of the trade is still in other currencies as the rouble is partially convertible and the two countries are yet to finalize a framework.

The government expects majority of payments to Russia in dirhams in the coming months.

India has longstanding political and security ties with Russia and has refrained from condemning the Ukraine war.

India is also a major buyer of Russian arms.