Rupee trade policy gather traction; number of special vostro account touches 50

India's policy of facilitating trade in rupee is gaining momentum with the total number of Special Rupee Vostro Account (SRVA) touching half a century mark in about six months.

As many as 49 accounts have been opened so far and some are awaiting regulatory approval, sources said.

These accounts would facilitate overseas trade in rupee with eight countries -- Russia, Mauritius, Sri Lanka, Malaysia, Myanmar, Singapore, Israel and Germany.

The RBI issued detailed guidelines on cross-border trade transactions in the domestic currency in July, 2022.

Following the Russia-Ukraine war and the sanctions imposed by the West, India has been trying to promote rupee trade.

Since July, Sberbank and VTB Bank -- the largest and second-largest banks of Russia, respectively -- are the first foreign lenders to receive approval after the RBI announced the guidelines.

Another Russian bank Gazprombank, which does not have its branch in India, has also opened this account with Kolkata-based UCO Bank.

Others like SBI Mauritius Ltd and People's Bank of Sri Lanka opened an SRVA with State Bank of India (SBI). In addition, Bank of Ceylon opened an account in its Indian subsidiary in Chennai.

Union Bank of India has opened a 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.

The RBI, as per the guidelines, decided to put in place an additional arrangement for invoicing, payment, and settlement of exports/imports in the rupee.

The RBI has allowed the special vostro accounts to invest the surplus balance in Indian government securities to help popularise the new arrangement.

"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," the RBI had said.

Overseas trade in rupee not only reduces dependence on foreign exchanges, especially US dollar, it also saves the country from external shocks and helps domestic banks to gain wider access to foreign financial markets and serve international clients without having to be physically present abroad.

Vostro accounts are not restricted to banks, they can be used by other entities such as insurance companies and business entities to keep funds with another entity.