The Indian government has opened five special vostro accounts for trade in rupee with Sri Lankan banks with a view of facilitating trade with the island nation, official sources said.
SBI Mauritius Ltd and People’s Bank of Sri Lanka opened an SVRA with State Bank of India (SBI). In addition, Bank of Ceylon opened an account in its Indian subsidiary in Chennai recently.
Union Bank of India has opened spec opened special rupee account of Ros Bank Russia while Chennai-based Indian Bank has opened such accounts of three Sri Lankan banks, including Colombo-based NDB Bank and Seylan Bank.
These special vostro rupee accounts (SVRA) with banks of Sri Lanka rationalizing the rupee trade arrangement.
Under the rules, any surplus in these rupee accounts can be invested in treasury bills and government securities. Banks want to understand how these securities will be transferred to the buyers.
Under the arrangement announced by the RBI on July 11, an authorized bank in India can open special rupee vostro accounts of correspondent banks of any partner trading country.
Both private and public sector banks have been reluctant to open and operate these vostro accounts, worried about getting hit by the US-led sanctions on Russia.
In view of the increasing interest of the global trading community in the Indian Rupee (INR), Reserve Bank of India (RBI) allowed for a settlement mechanism to carry out transactions in the rupee, with immediate effect.
This system will pave the way for facilitating trade with countries currently unable to conduct transactions in US Dollars, Euro, or other dominant foreign exchange currencies.
The new system will facilitate invoicing, payment, and settlement of exports/imports in rupees through Special Rupee Vostro Accounts, i.e., an account of a partner country bank with an authorized Indian bank. Under this new system, the payer’s country/bank will make the payment, which shall be credited into the Special Vostro account of the payee.
The move to open the special vostro account clears the decks for settlement of payments in rupee for trade between India and Russia, enabling cross-border trade in the Indian currency, which the RBI is keen to promote Indian news agencies reported.
“Indian importers undertaking imports through this mechanism shall make payment in INR (Indian Rupee), 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,” reported PTI citing the RBI.
India’s rupee trade settlement mechanism, a means of using rupees instead of dollars and other big currencies for international transactions, is attracting interest from more countries.
It has already been used by Russia following the imposition of sanctions on Moscow over the Ukraine war.The Reserve Bank of India (RBI) set up the mechanism in July.
The Indian government is looking to bring countries that are short of dollars into the mechanism, said a government official and an industry source aware of the development. The sources declined to be named, as the matter is confidential.
