In its latest circular, the Reserve Bank of India(RBI) has directed the authorized banks to facilitate the opening of Special Rupee Vostro Accounts(SRVAs). The trading partners of India can open these accounts directly with the respective authorized bank without the prior approval of the RBI. The announcement by the central bank aims at propelling the rupee-denominated trade. The move is also seen as a strategic masterstroke against the spiking US tariffs and aims to strengthen rupee-based multilateral trade prospects of India.
What are Special Rupee Vostro Accounts(SRVAs)?
Vostro accounts are opened and maintained as per the Foreign Exchange management (Deposit) Regulations, 2016. It is the account of a foreign bank held in the domestic bank in the local currency. For example, a Russian bank has an account in an Indian bank like SBI and the funds are denominated in the Indian currency i.e. rupees. While undertaking transactions or settling payments between the two countries, predominantly the money in the Vostro account is converted into a third-party currency such as dollar.
However, as per the latest RBI rules, under the purview of Special Rupee Vostro Accounts(SRVAs), international trade settlement can be completely channelized in Indian Rupees without the obligation of converting it into dollars or any other freely convertible currency. For example, if India purchases oil from Russia, payment can be settled directly in rupees without the need of converting it into dollars. This mechanism of rupee-based trade through the SRVAs boosts the momentum of rupee-denominated trade and will shield the Indian traders from the volatilities of the foreign exchange market.
SRVAs: Shield to Indian traders and the economy
As Special Rupee Vostro Accounts helps to settle the 100 per cent trade in rupees, it protects the Indian exporters and the importers from the risks and volatilities posed by the foreign exchange market. Direct rupee payment facilitates comparative stability to the traders against the exigencies posed by the dollar or any other trade barrier that makes the currency market vulnerable.
Especially in the wake of spiking tariff tantrums by Trump where he has imposed a massive 50% tariffs on India that includes 25% additional sanctions for importing the Russian oil, SRVAs announced by the RBI and the government can be deemed as an economic shield to protect Indian traders specifically those from the MSMEs against the global trade uncertainties.
Analysts opine that SRVAs will enable the inflow of more rupees into the country. This will gradually strengthen the value of rupees against the dollar in the forex market. It will also give India a strategic edge in trading with BRICS countries or other partners through a safe and secure SRVA route.
Most importantly, RBI circular mentions that the surplus funds held by the foreign banks in their respective Vostro accounts can be invested in government treasury bills and other government securities. Other avenues of investment can also be achieved through the SRVA account based on the mutual consent between the countries and by adhering to other regulatory and statutory guidelines.
Such investments indeed consolidate the fiscal prudence and the overall growth of the Indian economy. The announcement of Special Rupee Vostro Accounts(SRVAs) by the RBI thus comes at a critical economic juncture as a strategic masterstroke to upshot the growth trajectory of the Indian economy when the world is entangled in trade tussles and unrealistic tariffs by the Trump administration.
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