India and Russia have been settling some of their non-oil trade in rupees since the beginning of this year, said a top official at state-run Indian lender UCO Bank, which is involved in the transactions.

Last year, the Reserve Bank of India announced a mechanism to settle foreign trade in rupees, aimed at internationalising its use.

Russia is also keen to do more trade in "national currencies and currencies of friendly countries," its Deputy Prime Minister Denis Manturov said in April, to reduce its reliance on U.S. dollars after Western sanctions over its war in Ukraine.

So far, Russia's Gazprombank is the only foreign bank that has opened a special rupee vostro account with UCO Bank, UCO Chief Executive Soma Shankara Prasad told Reuters.

Prasad said UCO had received requests from other foreign banks, including some from Russia, to open special rupee vostro accounts.

"About 19-20 transactions have happened (in rupees) since January ... All these transactions have been Indian exports to Russia," he said.

Prasad said Russia was paying Indian exporters in rupees from payments received in Gazprombank's rupee vostro account for a "couple" of transactions with Indian importers, including the purchase of pollution measuring equipment by an Indian buyer.

"We are happy that two-way trade in rupee has started. It is at a very early, nascent stage and we hope that this is going to pick up", he said, adding if both sides want, oil trade could be brought under the rupee mechanism after it is fully established and tested.

The arrangement mirrors the mechanism India adopted to settle trade with Iran, where its oil payments to Tehran in rupees were used to supply non-sanctioned goods to the Islamic nation. UCO Bank was also involved in settling that trade.

Both Gazprombank and Russia's Trade and Industry Ministry did not immediately reply to requests for comment.

Earlier this month, Reuters reported that India and Russia had suspended negotiations to settle trade in rupees as the trade balance was tilted in favour of Moscow due to surging Russian oil imports by New Delhi.

India's annual trade with Russia more than tripled to $44.4 billion in the fiscal year to March 31, from $13.1 billion the year before.

Russia overtook Iraq for the first time as the top oil supplier to India in 2022/23, data obtained from trade sources showed.

To fix this trade imbalance Russia wants to expand supplies from India, such as machinery imports, components and equipment for road construction, chemicals and pharmaceuticals, Russia's Manturov said in April.

Manturov also said the countries were in talks for a free trade agreement and a bilateral investment agreement.

Sergei Lavrov, Russia's Foreign Minister, said earlier this month that talks were underway with India to exchange billions of rupees that have accumulated in Indian banks for other currencies. (Reporting by Nidhi Verma; Editing by Tony Munroe and Mark Potter)