Special INR Vostro Accounts
- July 14, 2022
- Posted by: OptimizeIAS Team
- Category: DPN Topics
Special INR Vostro Accounts
Subject : Economy
Section: External Sector
Government is getting a new avenue of borrowing with the Reserve Bank of India (RBI) enabled Special INR Vostro Accounts for investment in treasury bills (TBills) and GSecs.
- The new mechanism for international trade settlement in the rupee facilitates returns on the surplus balances in such accounts.
- The balance in Special Vostro accounts can be used for :
- Payments for projects and investments;
- export/import advance flow management
- investment in TBills and GSecs in terms of guidelines and prescribed limits, subject to the Foreign Exchange Management Act (FEMA) and similar statutory provisions.
- This will encourage countries to have current account surplus with India to open Special Rupee Vostro Accounts and use the surplus to build rupee denominated assets.
- The settlement of trade transactions under this arrangement shall take place in INR.
- In terms of Regulation 7(1) of Foreign Exchange Management (Deposit) Regulations, 2016, Authorised Dealer banks in India have been permitted to open Rupee Vostro Accounts.
- For settlement of trade transactions with any country, AD banks in India may open Special Rupee Vostro Accounts of correspondent bank/s of the partner trading country.
- In order to allow settlement of international trade transactions through this arrangement, it has been decided that:
- Indian importers undertaking imports through this mechanism shall make payment in INR which shall be credited into the Special Vostro account of the correspondent bank of the partner country, against the invoices for the supply of goods or services from the overseas seller /supplier.
- Indian exporters, undertaking exports of goods and services through this mechanism, shall be paid the export proceeds in INR from the balances in the designated Special Vostro account of the correspondent bank of the partner country.
- Use of Surplus Balance: The Rupee surplus balance held may be used for permissible capital and current account transactions in accordance with mutual agreement. The balance in Special Vostro Accounts can be used for:
- Payments for projects and investments.
- Export/Import advance flow management
- Investment in Government Treasury Bills, Government securities, etc. in terms of extant guidelines and prescribed limits, subject to FEMA and similar statutory provision.
- If a company exports or imports, transactions are always in a foreign currency (excluding with countries like Nepal and Bhutan).
- So, in case of imports, the Indian company has to pay in a foreign currency (mainly dollars and could also include currencies like pounds, Euro, yen etc.).
- The Indian company gets paid in foreign currency in case of exports and the company converts that foreign currency to rupee since it needs rupee for its needs, in most of the cases.