India and Myanmar have pioneered a new bilateral trade payment system. The Yangon office of the Punjab National Bank on July 2, 2024, successfully completed the first transaction exceeding one crore rupees for shipment of pulses under the Rupee-Kyat Settlement Mechanism. The initiative aims to streamline between India and Myanmar enhancing the efficiency by eliminating complexities associated with exchange rates through direct payment in local currencies.
The Central Bank of Myanmar introduced guidelines for payment procedures via the Special Rupee Vostro Account (SRVA) on January 26, 2024. The mechanism covers both sea and border trade encompassing transactions for goods and services. “We encourage businesses on both sides to benefit from the mechanism,” the Embassy of India in Yangon wrote on social media platform X.
The Secretary of Department of Consumer Affairs Nidhi Khare discussed the fluctuating prices of pulses with Indian Ambassador to Myanmar Abhay Thakur at an April meeting, considering the impact of volatile exchange rates and the stock levels held by traders.
The payment mechanism was officially announced on April 13 and it aims to streamline trade processes and lower exchange rate conversion expenses. In the meantime, the Indian government has requested importers and other stakeholders to provide weekly updates on their stock positions through the official portal They are being urged to adopt the Rupee/Kyat direct payment system using the SRVA facilitated by the Punjab National Bank.
SRVA is an account that domestic banks hold for foreign banks in the former’s domestic currency, the rupee which allows the domestic banks to provide international banking services to their clients who have global banking needs without having to be physically present abroad.
It has three important constituents, firstly all the exports and imports must be denominated and involved in domestic currency. Secondly, the exchange rate between the currencies of the trading partner countries would be market determined and lastly, the final settlement also takes place in domestic currency, rupee. The SRVA arrangement is also called Vostro accounts. It could reduce net demand for Foreign Exchange and reduce the need for holding Forex reserves.
The banks eligible for such processes, include approval from the apex banking regulator, which in this case is the Reserve Bank of India and the corresponding bank must not be from a country in the updated Financial Action Task Force (FATF) list and all reporting of cross border transactions is to be done in accordance under the Foreign Exchange Management Act. (FEMA).
