INTRODUCTION:

A Special Rupee Vostro Account is an account that domestic banks hold for foreign banks in the former’s domestic currency, in this case, the rupee. Domestic banks use it to provide international banking services to their clients who have global banking needs. It is an integral offshoot of correspondent banking that entails a bank (or an intermediary) to facilitate wire transfer, conduct business transactions, accept deposits and gather documents on behalf of the other bank. It helps domestic banks gain wider access to foreign financial markets and serve international clients without having to be physically present abroad.

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Recently, 20 Russian banks, including Rosbank, Tinkoff Bank, Centro Credit Bank and Credit Bank of Moscow have opened Special Rupee Vostro Accounts (SRVA) with partner banks in India.

• -The SRVA is an additional arrangement to the existing system that uses freely convertible currencies and works as a complimentary system.  The idea is to get around Western sanctions against Russia by carrying on trade in rupees.
• -In the case of trade with Russia, payments in rupee for the export and import of goods will go to these Vostro accounts. The owners and beneficiaries of this money will be the exporters and importers in both the countries. The banks will keep the record of money transferred.
• -The framework entails three important components, namely, invoicing, exchange rate and settlement. Invoicing entails that all exports and imports must be denominated and invoiced in INR. The exchange rate between the currencies of the trading partner countries would be market-determined. To conclude, the final settlement also takes place in Indian National Rupee (INR).

All reporting of cross-border transactions are to be done in accordance with the extant guidelines under the Foreign Exchange Management Act (FEMA), 1999.

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1. 1. Reduced Demand of Forex: The Economic Survey (2022-23) had argued that the framework could largely reduce the net demand for foreign exchange, for the settlement of current account related trade flows. It will further arrest fall of rupee as demand for forex reduces.
3. 2. Reduced Vulnerability to External Shocks: Reduced dependence on foreign currencies, would make the country less vulnerable to external shocks.
5. 3. Rupee as International Currency: As per the Bureau for International (BIS) Settlements’ Triennial Central Bank Survey 2022, the U.S. dollar accounts for 88% of all trades. The INR accounted for 1.6%. In the long-term it will promote Rupee as an international currency once the rupee settlement mechanism gains traction. Indian exporters could get advance payments in INR from overseas clients and in the long-term promote INR as an international currency once the rupee settlement mechanism gains traction, the survey argued.
7. 4. Trade with Sanctioned Countries: Ever since sanctions were imposed on Russia, trade has been virtually at standstill with the country due to payment problems. As a result of the trade facilitation mechanism introduced by the RBI, we see the payment issues with Russia easing.

CONCLUSION:

This mechanism will for sure promote growth of global trade with emphasis on exports from India and serve to support the increasing interest of the global trading community in the rupee.