The Reserve Bank of India (RBI) has granted approvals to foreign banks in 18 countries to open Vostro accounts to settle international trade in rupees. In July last year, the Centre had said that it will be setting up of a mechanism to settle international trade in rupees.
The RBI has allowed Botswana, Fiji, Germany, Guyana, Israel, Kenya, Malaysia, Mauritius, Myanmar, New Zealand, Oman, Russia, Seychelles, Singapore, Sri Lanka, Tanzania, Uganda, and the United Kingdom to open Vostro accounts as of now.
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While replying to a question in the Rajya Sabha on Tuesday, Minister of State for Finance Bhagwat Karad said the central bank had granted 60 approvals in total so far to domestic and authorised foreign banks to open so-called ‘Special Rupee Vostro Accounts’ of correspondent banks from 18 countries.
India had proposed the rupee trade settlement mechanism as the domestic currency was under tremendous pressure in the wake of Russia’s invasion of Ukraine since February 2022. While proposing the mechanism, the RBI said it would promote growth of global trade and support increasing international interest in the rupee.
Under the framework, all exports and imports may be denominated and invoiced in Indian rupees, with the exchange rate between the currencies of the two trading partner countries to be market determined.
To carry out these trade transactions, authorised Indian banks have to open Special Rupee Vostro accounts of correspondent banks of the partner trading country.
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The RBI had said, “Indian importers undertaking imports through this mechanism shall make payment in INR (Indian Rupee), which shall be credited into the special vostro account of the correspondent bank of the partner country, against the invoices for the supply of goods or services from the overseas seller/supplier.”
In February, Finance ministry officials said that 20 Russian banks, including Rosbank, Tinkoff Bank, Centro Credit Bank and Credit Bank of Moscow have opened Special Rupee Vostro Accounts (SRVA) with partner banks in India.
The settlement through domestic currency is an additional arrangement to the existing system that uses freely convertible currencies and will work as a complimentary system. It helps minimise reduce dependence on hard (freely convertible) currency.