Rupee trade facing friction as bank’s wary of US sanction

Rupee trade facing friction as bank’s wary of US sanction

Subject : Economy

Section: External Sector

Concept :

• There is a lack of clarity among banks about the International Trade Settlement mechanism in rupees (INR) and those with exposure to the U.S. are wary of sanctions, the Chairman of India’s Engineering Export Promotion Council (EEPC) said.
• Early last year, the Reserve Bank of India (RBI) had set up the International Trade Settlement mechanism in rupee, a move aimed at facilitating trade with countries under sanctions such as Russia.

Indian rupee trade settlement mechanism

• The RBI has announced the setting up of this mechanism to carry out international trade in Indian rupees.
• The Indian rupee trade settlement mechanism is a means of using the Indian rupee in all international transactions instead of dollars and other big currencies.
• Special vostro rupee accounts, or SVRA, have been opened by the Indian banks with the banks of Mauritius, Russia, Sri Lanka.

For Importers in India:

• Importers in India undertaking imports through the mechanism will be required to make payment in rupees which must be credited into the Vostro account of the correspondent bank of the partner country, against the invoices for the supply of goods or services from the overseas seller or supplier.

For exporters of India:

• In a similar way, exporters of India exporting goods and services through this mechanism must be paid the export proceeds in the Indian currency from the balance in a designated Vostro account of the correspondent bank of the partner country.

Vostro & Nostro Account

• A vostro account is a record of money held by a bank or owed to a bank by a third party (an individual, company or bank).
• The nostro account is a way of keeping track of how much of the bank’s money is being held by the other bank.
• For further reference – https://optimizeias.com/vostro-account/