RBI opens up its dated securities to help Russia park its Rupee surplus

RBI opens up its dated securities to help Russia park its Rupee surplus

Subject: Economy

Section: External Sector 

In News: Countries accumulating surplus in INR to be able to invest in G Secs through Rupee Accounts.

Key Points:

• With RBI’s amendment in FEMA Regulations 2019, countries holding Rupee accounts in India can directly invest that money in Government dated securities and thus earn interest and invest in India at the same time.
• The move is seen emerging from Russia’s rising Rupee balance after India paid for Russian crude oil in Rupees, because of the US led sanctions.
• This move aims to benefit 22 countries having bilateral trade settlements in INR (Indian Rupee) with India.
• Why was this move required?
  • International Trade Settlement in rupees, initiated in July last year, aims to promote the growth of global trade with emphasis on exports from India and to support the increasing interest of the global trading community in INR.
  • This is likely to increase the Rupee balance with participating countries.
•  Russia can get some comfort over its mounting surplus rupee problem as it, along with 21 other countries, can now invest in dated Government Securities and Treasury Bills through a rupee account.
• Reserve Bank of India has notified the amendment in Foreign Exchange Management (Debt Instruments) Regulations, 2019.
• The notification also said the amount of consideration for the purchase of dated Government Securities / treasury bills by persons resident outside India shall be paid out of funds held in their rupee account.
• Also, the sale/maturity proceeds (net of taxes, as applicable) of instruments held by persons resident outside India who maintain a rupee account shall be credited to the said rupee account.

Was there no such arrangement earlier?

• The new system will be apart from options to invest through the Foreign Portfolio Investor (FPI) route and Special Rupee Vostro Account (SRVA).