To promote the use of the Indian Rupee (INR) in global trade and reduce dependence on the US dollar, the Reserve Bank of India (RBI) introduced major changes on August 5, 2025, to simplify how foreign banks open Special Rupee Vostro Accounts (SRVAs). These accounts allow foreign banks to hold and use rupees for trade payments with India, helping Indian exporters and importers avoid the need for third-party currencies like the dollar or euro.
Under the new rules, Indian banks classified as Authorised Dealer (AD) Category-I no longer need to seek prior approval from the RBI to open SRVAs for their foreign partner banks. This change removes delays caused by the earlier requirement of case-by-case RBI clearance and comes into effect immediately. By making it faster and easier for foreign banks to open these rupee accounts, the RBI aims to speed up trade settlements, strengthen India’s alternative payment systems, and advance the government’s long-term goal of establishing the rupee as a reliable currency for international transactions.
The move, announced through Circular No. RBI/2025-26/71 and signed by RBI Chief General Manager N. Senthil Kumar, was made under Sections 10(4) and 11(1) of the Foreign Exchange Management Act (FEMA), 1999. It is a departure from the previous system, wherein every SRVA needed to be case-by-case cleared by the central bank.
Policy shift with geopolitical and economic underpinnings
The timing of the release is interesting. The local currency has been under pressure, hitting an all-time low of Rs 86.70 per US dollar earlier this week. Overseas currency volatility, the ongoing effects of sanctions across various trade conduits, and the changing geopolitics have moved many economies to diversify their settlement choices.
India has already entered into Memoranda of Understanding (MoUs) with the United Arab Emirates’ central bank, Indonesia, and the Maldives to enable trading in local currencies, including the rupee.
The RBI action follows a thorough review of the July 2022 framework for international trade settlement in INR. The latter had seen SRVAs being launched as an instrument for Indian exporters and importers to invoice, make payments, and receive trade proceeds in rupees, without the intermediation of a third-country currency like the dollar or the euro.
What the new rules mean
Under the new regime:
1. No RBI Pre-Approval for SRVAs: AD Category-I banks may now open SRVAs directly with overseas correspondent banks they have a pre-existing relationship with, without approaching the RBI for permission.
2. Immediate Applicability: The modification comes into effect immediately, with the banks being required to notify their constituents and customers.
3. Compliance Still Required: Though procedural obstacles have been eliminated, banks are still required to adhere to all current FEMA provisions, Know Your Customer (KYC) guidelines, Anti-Money Laundering (AML) rules, and Combating the Financing of Terrorism (CFT) norms.
4. Increased Transactional Flexibility for Non-Residents: Individuals residing outside India may now utilise their balances in repatriable INR accounts, Special Non-Resident Rupee accounts and SRVAs, to invest abroad in non-debt instruments, like Foreign Direct Investment (FDI).
5. Overseas Currency Accounts for Exporters: Indian exporters are now allowed to open foreign currency-denominated accounts overseas to receive export proceeds and utilise the same to make imports.
Why it matters?
Operational Efficiency: Elimination of the approval step is likely to cut overseas partner bank onboarding timelines. Quicker operationalisation translates to trade contracts being executed without procedural bottlenecks delays.
Rupee Internationalisation Alignment: The action forms part of an effort to make the rupee a world-duly-recognised settlement currency, building on January 2025 reforms making holding abroad of repatriable INR accounts by non-residents possible.
Settlement currencies diversification
To Indian importers and exporters, having the option to trade in INR eliminates the risk of dollar volatility and minimises conversion charges. This applies particularly to trading partners who have dollar liquidity problems or sanctions in their respective jurisdictions.
Trade Competitiveness: INR invoicing can also make Indian services and products cheaper to some partners by eliminating several foreign exchange conversions.
Geopolitical Resilience: More than 80 SRVAs are already functioning in over 20 countries. It may assist India in sustaining strong trade flows even in the event of disruption of the dollar-based system.
The SRVA mechanism explained
A Special Rupee Vostro Account is a foreign bank’s account kept by an Indian bank in INR.
For Imports: Indian importers make payment in INR into the foreign bank’s SRVA.
For Exports: These SRVAs pay Indian exporters in the form of INR credits for supplied goods and services.
The mechanism enables settling trade transactions fully in rupees, where the foreign bank draws on its rupee balance to pay Indian exporters or to invest in approved Indian assets.
When launched initially in July 2022 under A.P. (DIR Series) Circular No.10, the SRVA system needed prior RBI approval for every account. The change this week eliminates that chokepoint while maintaining compliance monitoring.
156 SRVAs opened by 30 Countries
123 correspondent banks in 30 nations have opened 156 SRVAs with 26 Indian banks as of February 2025. Total vostro balances of Rs. 134.55 billion ($1.6 billion) as of December 2024. The Reserve Bank has asked the finance ministry to lift the 30 percent cap for holding Special Rupee Vostro Account (SRVA) balances in short-term sovereign debt. The cap, put in place to promote long-term capital inflows, now bars Vostro account holders, essentially foreign banks with rupee balances for trade, from investing up to 30 percent in government securities maturing less than one year. The decision, if passed, can fortify the use of the rupee in international trade and broaden the SRVA mechanism beyond settlement of trade.
The RBI’s latest initiative is aligned with the government’s stated aim of making the Indian Rupee a part of a multipolar global currency system. Finance Ministry officials have, in recent months, underlined the strategic importance of currency diversification, particularly in light of supply chain realignments and regional trade agreements.
In the past two years, India has operationalised rupee settlement arrangements with countries in Asia, Africa, and Eastern Europe. Analysts say that, if scaled effectively, such frameworks could reduce India’s reliance on the US dollar for as much as 15-20 percent of its trade within the next decade.
With the August 5 circular, the RBI has sent a clear signal: India is serious about scaling up the rupee’s international footprint. The simplification of SRVA procedures, coupled with earlier reforms, is expected to widen the currency’s role in cross-border trade.
In the short term, both stakeholders and observers will be monitoring two metrics, the growth rate in the number of SRVAs and trade volume settled in INR. Both will be key metrics in determining whether the policy delivers in terms of concrete economic benefits.
If it happens, the shift will represent a watershed moment in India’s path toward currency internationalisation, offering exporters and importers a credible substitute for dollar reliance while strengthening the country’s position within the new world order of global trade.
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