The Reserve Bank of India (RBI) has taken a significant step towards promoting international trade in Indian rupees. It has granted approvals to foreign banks in 18 countries, including 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. These accounts will enable the settlement of international trade in rupees.
The move comes after the Indian government announced its
intention to establish a mechanism for settling international trade in rupees
in July last year. Minister of State for Finance Bhagwat Karad, while
responding to a question in the Rajya Sabha, confirmed that the RBI has granted
a total of 60 approvals so far to domestic and authorized foreign banks to open
"Special Rupee Vostro Accounts" of correspondent banks from 18 countries.
The rupee trade settlement mechanism was proposed by India
as a response to the significant pressure on its domestic currency in the
aftermath of Russia's invasion of Ukraine in February 2022. The RBI believes
that the mechanism will promote global trade growth and encourage
international interest in the rupee.
Under this framework, all imports and exports can be
denominated and invoiced in Indian rupees, with the exchange rate between the
currencies of the two trading partner countries to be determined by the market.
Authorized Indian banks will open Special Rupee Vostro accounts of
correspondent banks of the partner trading country to carry out these trade
transactions.
Indian importers will make payments in INR (Indian Rupee),
which will be credited to 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, the finance ministry
officials announced that 20 Russian banks, including Rosbank, Tinkoff Bank,
Centro Credit Bank, and Credit Bank of Moscow, had 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 complementary system. It helps reduce dependence on hard (freely
convertible) currency. The RBI's decision to grant approvals to foreign banks
in 18 countries to open Vostro accounts is a positive step towards promoting
international trade in rupees and will support India's efforts to reduce its
dependence on hard currencies.
