On the lines of an arrangement being worked out with Russia, India is in talks with Sri Lanka, the Maldives and multiple south east Asian, African and Latin American countries to initiate trading in the Indian Rupee.
The countries in these geographies have shown interest in opening Special Rupee Vostro or SRV accounts, The Indian Express has learnt. A Vostro account is an account held by a bank that allows the customers to deposit money on behalf of another bank.
The Reserve Bank of India had announced guidelines on overseas trade in Indian Rupee in July. In part, this is also aimed at curtailing India’s dollar dependence for trade, and indirectly strengthen the domestic currency.
The first country to open a special Rupee Vostro account is Russia, which has increased supply of discounted crude to India post the Ukraine war. In September, government-owned UCO Bank received the RBI’s approval to open a special vostro account with Gazprombank of Russia and in October, Sberbank and VTB Bank – the largest and second-largest banks of Russia – opened special vostro accounts in their respective branches in Delhi.
Since Russia’s invasion of Ukraine, various countries in the West and the US have put sanctions on Moscow and the country is off the SWIFT system too (system used by banks for payments in foreign currency). Russia would be, for the time being, interested in trading in rupee since other modes of payment may not be available.
“The Ministry of External Affairs mentioned their missions abroad in this regard. Interest was also forthcoming from several countries, notably Sri Lanka, Maldives, various Southeast Asian, African and Latin American countries,” read the minutes of the meeting in September chaired by the then Department of Financial Services secretary Sanjay Malhotra.
“The Department of Economic Affairs also mentioned that based on their interaction in various bilateral meetings/dialogues with partner countries, there was considerable interest from various countries in opening SRV accounts,” the minutes of the meeting obtained by The Indian Express through an RTI application said.
Malhotra and T. Rabi Sankar, Deputy Governor, RBI, chaired the meeting that was attended by representatives of various ministries, RBI, IBA and both private and government banks. The Ministry of External Affairs was represented by Vinod Bahade, Director, and Aparna Bhatia, Advisor, represented the Department of Economic Affairs.
Under the Indian rupee arrangement, banks in India will open Vostro accounts (an account that an Indian bank will hold on behalf of another bank) of correspondent bank/s of the partner country for trading. Indian importers can pay for their imports in rupee into these accounts. These earnings (from Indian imports) can then be used to pay Indian exporters in Indian Rupee. Unlike regular Vostro accounts, INR (Indian Rupee) balances can be held in these Special Vostro Accounts rather than them being only transit accounts like normal Vostro accounts.
Any rupee trade arrangement between India and a country, which has a trade deficit with India, may not be feasible in the long-run. Russia is an exception in this case since the country is under sanctions and could use the Indian rupee to invest here to fulfil their offset obligations under defence contracts.
India’s current account balance recorded a deficit of $23.9 billion (2.8 percent of GDP) during the first quarter of 2022-23, up from $13.4 billion (1.5 percent of GDP) during the fourth quarter of 2021-22 and a surplus of $6.6 billion (0.9 percent of GDP) during the first quarter of 2021-22, RBI had said in a press statement in September. India’s trade deficits have been high with China, Switzerland, Saudi Arabia, Iraq and Indonesia. India trade surpluses have been with the US, United Arab Emirates, Hong Kong, United Kingdom and Vietnam.