In a pivotal move, the Reserve Bank of India (RBI) has granted permission to 20 banks operating in India to establish 92 Special Rupee Vostro Accounts (SRVAs) in collaboration with partner banks from 22 countries. This progressive decision allows exporters and importers from the eligible nations to conduct trade transactions using domestic currencies, promoting more seamless and efficient trade practices.
The list of countries eligible for the Special Rupee Vostro Accounts comprises a diverse range, including 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. By facilitating trade transactions in their local currencies, this initiative is expected to bolster economic ties between India and these nations, paving the way for mutually beneficial trade relationships.
Furthermore, on July 15, 2023, a significant development took place as the RBI and the Central Bank of UAE signed a Memorandum of Understanding (MoU), enabling exporters and importers to use their respective domestic currencies for invoicing and payments. This landmark arrangement is anticipated to facilitate the creation of a bilateral foreign exchange market, fostering stronger trade relations between India and the UAE.
The RBI had previously introduced a framework in February of the current year, allowing invoicing and payments for international trade to be conducted in Indian Rupee. This forward-thinking approach not only promotes global trade growth but also emphasizes boosting Indian exports and meeting the rising demand for INR as a currency for international transactions. The framework applies to any partner country engaging in trade with India using INR.
To further facilitate international trade settlements in INR, the Directorate General of Foreign Trade (DGFT) has incorporated relevant provisions in the Foreign Trade Policy, covering invoicing, payment, and export/import settlements. As a result, export benefits and fulfillment of Export Obligation are now granted for export realizations in INR, following RBI guidelines.
Definition: Understanding Vostro Accounts and their Purpose
A Vostro account refers to a type of account held by a foreign bank in its domestic currency with a correspondent bank in another country. Its primary purpose is to facilitate 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.
Key Features: Two-Way Communication and Invoicing/Payments
Vostro accounts involve a two-way communication process between the foreign bank and the correspondent bank, ensuring transparency and efficiency in cross-border transactions. They are frequently used for invoicing and payments in domestic currencies, effectively reducing currency conversion costs and simplifying trade transactions.