The Central government officials announced recently that nine special vostro accounts had been formed with two Indian banks with clearance from the Reserve Bank of India to ease rupee transactions abroad. The largest and second-largest banks in Russia, Sberbank and VTB Bank, are the first foreign lenders to gain authorisation following the RBI's announcement of the rules for rupee trading abroad in July. In this article, we will discuss the recent notification for exchange of rupees and vostro accounts in detail.
The Nine unique vostro accounts have been opened with two Indian banks with approval from the Reserve Bank of India to facilitate rupee transactions abroad, a central government official recently disclosed. Sberbank and VTB Bank, the largest and second-largest banks in Russia, are the first foreign lenders to receive authorization after the RBI announced the guidelines for rupee trading abroad in July.
The Central government has given nine banks permission to open unique Vostro accounts, three months after the Reserve Bank of India permitted trade settlement in Indian rupees. According to a senior government official, three of the nine banks—Gazprombank with UCO Bank (Kolkata), VTB, and Sberbank with their own branch offices have opened accounts.
However, according to Import and export India Data, India's exports to Russia, which is under suspension and had a 24% decrease in business from April to August, will be made easier by the action. Exchange concerns are eliminated by the RBI-designed method, which exclusively permits trade in Indian rupees.
The Accounts held by a correspondent bank on behalf of another bank are known as vostro accounts. These accounts are a crucial component of correspondent banking; where the bank that is holding the cash looks after or manages the account of a foreign counterpart. Additionally, a vostro account is a crucial component of correspondent banking, in which a foreign bank functions as an agent, supplying financial services on behalf of a domestic bank.
Businesses that require international banking services can use these accounts to open new accounts through their home bank as needed. The majority of Vostro accounts will offer the same desired banking services as a typical bank account, such as foreign currency transactions, deposits and withdrawals, and wire transfers.
The commencement of the special vostro account clears the way for rupee payments to be settled for commerce between India and Russia, facilitating cross-border trade in the Indian rupee, which the RBI is eager to promote. To spread awareness of the new structure, the RBI has accepted the special vostro accounts to invest the surplus balance in Indian government securities.
The government last week amended its international trade policy to allow exporters to take advantage of incentives or tax reductions for settling trade in rupee terms in order to facilitate commerce through this method. The action was taken to encourage exporters to increase their exports to nations like Russia.
However, the payments became a problem for exporters almost once after the Russia-Ukraine conflict erupted in February, especially after Russia was shut off from the SWIFT payment system. There are now nine accounts such as Uco Bank, Sber, VTB, and six with IndusInd Bank. Said Sunil Barthwal, the secretary of commerce, claimed that these six are various Russian banks.
The top executives of banks and leaders of trade organisations were requested by the RBI and the finance ministry last month to promote export and import transactions in the rupee. To encourage cross-border trade in the rupee rather than the more common US dollar, they want banks in India to connect with their international counterparts and open special rupee vostro accounts.
The secretary responded that there is a process involved in it and hoped that it will materialize soon when asked when the rupee trade with Russia will start. Barthwal claimed to have met with representatives of the UCO Bank, RBI, and Department for Financial Services to explore strategies for fostering the trade of rupees.
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