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The updated framework for international trade settlement in Indian Rupees (INR) introduces the Special Rupee Vostro Account (SRVA), creating a complementary system alongside existing arrangements that utilize freely convertible currencies. This new mechanism aims to reduce reliance on hard currencies while maintaining financial stability.
The SRVAs differ from regular Rupee Vostro Accounts by requiring prior approval from the Reserve Bank of India (RBI). Banks intending to open SRVAs must demonstrate robust financial health, a history of facilitating trade, and strong relationships with correspondent banks. Settlement rates are determined based on market conditions, frequently utilizing cross-currency rates.
SRVAs allow Indian exporters and importers to settle transactions in INR, thereby minimizing exchange rate risks. The balances maintained in SRVAs can be:
This system applies broadly, not targeting specific nations, and is integral to India's strategy for promoting the use of INR in global trade. Authorized Dealer (AD) banks in India are tasked with transaction reporting, with the ability for multiple SRVAs to be opened per foreign bank or trading partner, thus strengthening trade resilience and financial stability.
Answer: The SRVA is an additional arrangement for settling international trade in INR and requires prior RBI approval, unlike the standard Rupee Vostro Account.
Answer: The INR settlement mechanism serves as a supplementary system to existing arrangements, aiming to decrease dependency on hard (freely convertible) currencies.
Answer: Yes, prior RBI approval is mandatory. The requesting bank must show business resilience, financial soundness, experience in trade or investment transactions, and robust correspondent relationships.
Answer: Correspondent banking serves as an intermediary for transactions, enabling wire transfers, deposit handling, and business transactions on behalf of other banks. It facilitates domestic banks in accessing foreign markets without branch establishment.
Answer: The SRVA operates as a bank-to-bank arrangement, akin to a correspondent banking relationship.
Answer: The AD bank must submit the following to the RBI:
Answer: Yes, subject to RBI approval, provided the Indian branch is an AD bank.
Answer: No.
Answer: Yes.
Answer: No, an AD bank can open multiple SRVAs for different banks from the same country.
Answer: Exchange rates are market-determined between the currencies of the two trading partner countries.
Answer: If no direct exchange rate exists, the rate is derived from cross-currency rates involving global currencies like USD and EUR, based on market activity.
Answer: The policy is not country-specific but is part of a broader strategy for increasing INR usage in international trade.
Answer: Yes, balances can be repatriated in convertible currencies or the currencies of the beneficiary trading partner, based on the underlying transaction.
Answer: Yes, subject to applicable guidelines and tax regulations.
Answer: Yes, SRVA balances represent foreign exchange inflows converted into INR and can be used for permissible transactions under the FEMA framework.
Answer: Surplus balances can be invested in government treasury bills and securities, and other mutually agreed-upon investment avenues compliant with regulations.
Answer: Yes, INR exposures can be hedged in line with applicable regulatory guidelines.
Answer: No.
Answer: The AD bank in India is responsible for transaction reporting related to the correspondent bank's SRVA.
Answer: The settlement in INR reduces exchange rate risk, enhancing predictability for Indian exporters and importers.
The introduction of the Special Rupee Vostro Account significantly enhances the framework for international trade settlement in INR, allowing Indian entities to mitigate exchange rate risks and encouraging broader use of the Indian currency in global markets.