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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