The RBI has taken a pivotal step by permitting 20 banks operating in India to open 92 Special Rupee Vostro Accounts (SRVAs) with partner banks from 22 countries. This allows exporters and importers from these nations to conduct trade transactions in domestic currencies, facilitating smoother and more efficient trade practices.
Strengthening Ties with Partner Nations:
The list of countries eligible for the Special Rupee Vostro Accounts includes Bangladesh, Belarus, Botswana, Fiji, Germany, Guyana, Israel, Kazakhstan, Kenya, Malaysia, Maldives, Mauritius, Myanmar, New Zealand, Oman, Russia, Seychelles, Singapore, Sri Lanka, Tanzania, Uganda, and the United Kingdom. This move is expected to foster stronger economic ties between India and these nations.
Bilateral Currency Arrangement with the Central Bank of UAE:
In a significant development, the RBI and the Central Bank of UAE have signed a Memorandum of Understanding (MoU) on July 15, 2023, enabling exporters and importers to invoice and pay in their respective domestic currencies. This arrangement is expected to facilitate the development of a bilateral foreign exchange market and strengthen trade relations between India and the UAE.
Framework for International Trade Settlement in INR:
The RBI introduced a framework in February of the current year to allow invoicing and payments for international trade in Indian Rupee. This move encourages global trade growth, with a specific emphasis on boosting Indian exports and catering to the growing interest in INR as a currency for international transactions. The framework applies to any partner country engaging in trade with India in INR.
Promoting INR in Export Settlements:
The Directorate General of Foreign Trade (DGFT) incorporated provisions in the Foreign Trade Policy to facilitate international trade settlements in INR, covering invoicing, payment, and export/import settlements. Export benefits and fulfillment of Export Obligation are now granted for export realizations in INR, in accordance with RBI guidelines.
Vostro Account: Key Points
Definition: A Vostro account is a type of account held by a foreign bank in its domestic currency with a correspondent bank in another country.
- Purpose: It facilitates international trade and cross-border transactions by enabling foreign banks to hold funds and settle transactions in the local currency of the correspondent bank’s country.
- Correspondent Bank: The bank in the foreign country that holds the Vostro account on behalf of the foreign bank is referred to as the correspondent bank.
- Two-Way Communication: Vostro accounts involve a two-way communication process between the foreign bank and the correspondent bank for transparent and efficient cross-border transactions.
Invoicing and Payments: Vostro accounts are often used for invoicing and payments in domestic currencies, reducing currency conversion costs and simplifying trade transactions.