Special Vostro Rupee Accounts

RBI has allowed banks from 18 countries to pen Special Vostro Rupee Accounts (SVRAs).

SVRAs may be established by banks from partner nations by approaching Authorised Dealer (AD) institutions in India.
According to the Union Minister of State for Finance, it may receive approval from the RBI after the proper procedure.

About
- A vostro account is a foreign bank account held by a domestic bank in the latter’s domestic currency, in this case, the rupee.
- Domestic banks use it to provide international banking services to clients with global banking needs.
- The SRVA is an extension of the existing system that uses freely convertible currencies and functions as a complement.
- To allow commerce, present systems necessitate keeping balances and positions in currencies such as the US dollar and the British pound.
Framework
- All exports and imports must be denominated and invoiced in Indian National Rupees (INR).
- The market would establish the exchange rate between the trading partners’ currencies.
- The Final Settlement is also conducted in INR.
- Eligibility Criteria of Banks
- When banks from partner countries approach opening SRVA, the authorised domestic bank will seek approval from the highest banking authority by presenting specifics of the agreement.
- Domestic banks must guarantee that the correspondent bank does not come from a country on the FATF’s list of High Risk and Non-Cooperative countries.
- Furthermore, approved banks are permitted to open numerous SVRA accounts for banks from the same nation.

The authorised domestic dealer banks are required to open SRVA accounts for correspondent banks of the partner trade countries.
Domestic importers must pay (INR) into the correspondent bank’s SRVA account against invoices for products or services an overseas seller/supplier supplied.
Similarly, domestic exporters will be paid the export revenues (in INR) from the balances in the designated account of the partner country’s correspondent bank.
Via the above-mentioned Rupee Payment Mechanism, Indian exporters may get advance payment in Indian rupees from overseas importers for exports.
Nonetheless, the local bank’s top priority would be to guarantee that the available funds are used to meet current payment obligations.
- Such as already executed export orders or export payments in the pipeline.
All cross-border transactions must be reported under the current Foreign Exchange Management Act (FEMA) rules.

International banking services
- Domestic banks use it to provide foreign financial services to their clients without physically being present in another country.
Payments in rupee
- It also allows for rupee payments for the export and purchase of goods in the event of trade with Russia.
- Account balances can be repatriated in freely convertible currency and/or the currency of the beneficiary partner country.
Expansion of market base
- It enables domestic banks to get greater access to international financial markets.
Reduction in forex
- According to the Economic Report (2022-23), the framework might significantly lower the net demand for foreign exchange.
INR as an international currency
- It promotes INR as a worldwide currency in the long run.

About
- A Nostro account is a bank’s account in another bank.
- It enables consumers to deposit funds into a bank’s account at another bank.
- It is frequently used when a bank has no branches in a foreign country.
- Nostro is a Latin word that means “ours”.
- Assume bank “A” has no branches in Russia, although bank “B” does.
- “A” will now open a Nostro account with “B” to receive the deposits in Russia.
- Now, if any consumers in Russia wish to send money to “A”, they can deposit it into A’s account in “B”.
- “B” will pay “A” the money.
- The major distinction between a deposit account and a Nostro account is that private depositors own the former, whereas the latter is held by foreign entities.

Pic Courtesy: The Hindu

Content Source: The Hindu