VOSTRO ACCOUNT - INTERNATIONAL RELATIONS
News: Nine special vostro accounts opened for trade in rupee after RBI approval
What's in the news?
● As many as nine special vostro accounts have been opened with two Indian banks after permission from the Reserve Bank of India to facilitate overseas trade in rupee, a top government official said it.
Key takeaways:
○ Sberbank and VTB Bank,
the largest and second-largest banks of Russia,
respectively, are the first foreign lenders to receive the approval after the
RBI announced the guidelines on overseas trade in the rupee in July.
● Another Russian bank Gazprom, which does not have its bank in India has also opened this account with Kolkata-based UCO Bank.
Why Vostro Accounts?
● The
move to open the special vostro account clears the deck for settlement of payments in rupee for trade
between India and Russia, enabling cross-border trade in the Indian currency,
which the RBI is keen to promote.
● The
RBI has allowed the special vostro accounts to invest the surplus balance in Indian government securities to help
popularize the new arrangement.
● The vostro accounts did not need permission earlier. Now the RBI has specified that banks acting as authorized dealers need to secure prior approval from the regulator to put in place this mechanism.
Vostro Account:
● A
Vostro account is an account that a
domestic bank holds for a foreign bank in the domestic bank’s currency -
which, in the case of India, is the rupee. The RBI allowed nine such accounts,
including IndusInd Bank and UCO Bank.
● In
the case of trade with Russia, payments in rupee for the export and import of
goods will go to these Vostro accounts.
● The owners and beneficiaries of this money will be the exporters and importers in both the countries. The banks will keep the record of money transferred.
How does it work?
1. Indian importers could make payment in rupees to the Special Vostro account of the correspondent bank of the partner country, against invoices for the supply of goods or services from the overseas seller.
2.
Indian exporters shall be paid proceeds in rupees from the balances in the
designated vostro account of the correspondent bank of the partner
country.