20 banks open vostro accounts to settle foreign trade in rupees
As per a study by the Federation of Indian Export Organisations (FIEO), India’s shipments to sanctions-hit Russia could grow by another $5 billion if the rupee settlement mechanism becomes functional.
PremiumNew Delhi: Around 20 banks have opened special rupee vostro accounts to facilitate the rupee settlement mechanism launched by the Reserve Bank last year, and some exporters have begun to receive settlement in the domestic currency, government officials said on Wednesday,
“This is a new initiative so there are teething troubles relating to the exchange rate, the repatriation of money. But there are some cases where banks have started it [rupee settlement]. There are marble exporters in Jaipur and other places who have started receiving it," these officials said.
The settlement mechanism is expected to boost trade with Russia and other countries facing US sanctions. As per a study by the Federation of Indian Export Organisations (FIEO), India’s shipments to sanctions-hit Russia could grow by another $5 billion if the rupee settlement mechanism becomes functional.
The officials added that the government is in regular touch with banks as well as the Department of Financial Services (DFS), while the commerce secretary met with stakeholders to sort out some of the issues pertaining to the rupee trade.
“All major banks have listed the nodal officers for their respective banks and that list has been shared with all the Export Promotion Councils (EPCs) so that if they have any issues they can get in touch with the nodal officer," they said. In July 2022, the Reserve Bank of India issued a circular permitting an additional arrangement for invoicing, payment and settlement of exports or imports in Indian rupees with an emphasis on exports and to support the increasing interest in the global trading community in the rupee as an international currency.
The framework involves invoicing of exports and imports in rupees, market-determined exchange rates between the currencies of the trading partner- countries, and settlement through special Rupee Vostro accounts opened with authorized dealer banks in India.
“The framework could largely reduce the net demand for foreign exchange, the US dollar in particular, for the settlement of current account related trade flows. Further, the use of INR in cross-border trade is expected to mitigate currency risk for Indian businesses," The Economic Survey said. Protection from currency volatility not only reduces the cost of doing business but also enables better business growth, improving the chances for businesses to grow globally.
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