The Reserve Bank of India (RBI) has allowed trade settlements between India and other countries, including Sri Lanka and Russia, in rupees.
- Banks have to take approval on doing such transactions.
- Banks in India are permitted to open Vostro accounts in rupees (Vostro accounts are arrangements between banks across geographies).
- The RBI said for settling trade transactions with any country, banks in India might open special rupee Vostro accounts of correspondent bank/s of the partner-country in trading.
- Indian importers undertaking imports through this mechanism shall make payment in INR 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.
- Indian exporters sending out goods and services through this mechanism should be paid in rupees from the balances in the designated special Vostro account of the correspondent bank of the partner country.
Nostro and Vostro
- Nostro, along with Vostro, is a term used to describe a bank account. In fact, both terms are used to describe the same bank account.
- These terms come into play when one bank has another bank’s money on deposit. In fact, this is related to international trade and financial transactions.
- Nostro and vostro are derived from Latin words that mean “ours” and “yours,” respectively.
- Suppose, Bank A will use the term Nostro account to refer to “our” account held by Bank B. Basically, Nostro is shorthand for “our money that is on deposit at your bank”.
- The Nostro account is the record maintained by the bank that has money deposited with another bank.
- They enable simplified trade settlements and foreign exchange transactions.
- Nostro accounts are denominated in foreign currencies.
- Bank B, where bank A’s money is deposited, will use the term Vostro account to refer to “your money that is on deposit at our bank”.
- Vostro account example: If an Indian bank maintains an account with an overseas bank in Russia in ruble, such an account, maintained in a foreign currency at a foreign centre, would be called a Nostro account by the concerned Indian bank.
- The Russia bank concerned will refer to the same account as a Vostro Account.
- Suppose a Russian bank opens a rupee account with a bank in India and puts Rs 10 lakh in it. Then India’s liability becomes rouble 10.4 lakh as the exchange rate is 1.4. It will be a vostro account. Now, if an Indian businessman exports goods to a Russian buyer worth ₹10 lakh, then the Indian bank will debit the Russian bank’s vostro account and the transaction will be squared up.
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