RBI allows banks of other nations to trade in rupee
17th Mar, 2023
Banks from 18 countries have been permitted by the Reserve Bank of India (RBI) to open Special Vostro Rupee Accounts (SVRAs) for settling payments in Indian rupees.
- The process of SVRAs began in July 2022 when the RBI announced to put in place an additional arrangement for invoicing, payment, and settlement of exports/imports in INR.
- India has been supporting the idea of trade in local currency mainly to boost exports.
What are Special Vostro accounts?
- A vostro account is an account that domestic banks hold for foreign banks in the former’s domestic currency.
- Domestic banks use it to provide international banking services to their clients who have global banking needs.
- It is an integral offshoot of correspondent banking that entails a bank (or an intermediary) to facilitate wire transfer, conduct business transactions, accept deposits and gather documents on behalf of the other bank.
- It helps domestic banks gain wider access to foreign financial markets and serve international clients without having to be physically present abroad.
- The SRVA is an additional arrangement to the existing system that uses freely convertible currencies and works as a complimentary system.
- To Facilitate Trade: Indian exporters could get advance payments in INR from overseas clients and in the long-term promote INR as an international currency once the rupee settlement mechanism gains traction.
About the initiative:
- SVRAs could be set up by banks of partner countries by approaching Authorised Dealer (AD) banks in India that may get permission from the RBI after the due procedure.
- The RBI had granted approval to domestic and foreign AD Banks in 60 cases for opening SRVAs of banks from 18 nations.
- The countries includes Botswana, Fiji, Germany, Guyana, Israel, Kenya, Malaysia, Mauritius, Myanmar, New Zealand, Oman, Russia, Seychelles, Singapore, Sri Lanka, Tanzania, Uganda and the United Kingdom.
- Procedures for trade in INR have been delineated by RBI in the Circular (No 10 RBI/2022-2023/90 dated on ‘International Trade Settlement in Indian rupees’.
- RBI has clarified matters related to operationalization of SRVAs through FAQs, which are available to banks, importers and exporters etc.
What is the eligibility criterion of banks?
- Authorised banks can open multiple SRV accounts for different banks from the same country.
- Further, balances in the account can be repatriated in freely convertible currency and/or currency of the beneficiary partner country depending on the underlying transaction, that is, for which the account was credited.
- Domestic banks must also put forth for perusal, financial parameters pertaining to the corresponding bank.