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.
Key points
- In July 2022, 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.
- While replying to a question in the Rajya Sabha on March 14, Minister of State for Finance 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’ (SRVA) 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.
- 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.
About vostro account
- A vostro account is an account that domestic banks hold for foreign banks in the former’s domestic currency, in this case, the rupee.
- Domestic banks use it to provide international banking services to their clients who have global banking needs.
- The SRVA is an additional arrangement to the existing system that uses freely convertible currencies and works as a complimentary system.
