RBI allows settlement in rupee to settle trade with Sri Lanka, Russia

Thursday, 14 July 2022 00:25 - - {{hitsCtrl.values.hits}}

www.business-standard.com: The Reserve Bank of India (RBI) has allowed trade settlements between India and other countries, including Sri Lanka and Russia, in rupees.

“In order to promote the growth of global trade with emphasis on exports from India and to support the increasing interest of the global trading community in INR, it has been decided to put in place an additional arrangement for invoicing, payment, and settlement of exports/imports in INR,” the RBI said in a notification on Monday.

Banks have to take approval on doing such transactions.

“(The) exchange rate between the currencies of the two trading partner countries may be market-determined,” the RBI said.

S P Jain Institute of Management and Research Associate Professor Ananth Narayan told Business Standard: “On first reading, this circular seems geared towards enabling rouble-rupee trades settled in rupees. The language also seems to envisage alternative financial messaging to SWIFT (Society for Worldwide Interbank Financial Telecommunications), if so needed.”

Banks in India are permitted to open Vostro accounts in rupees (Vostro accounts are arrangements between banks across geographies). The RBI said for settling trade transactions with any country, banks in India might open special rupee Vostro accounts of correspondent bank/s of the partner-country in trading.

“Indian importers undertaking imports through this mechanism shall make payment in INR which shall be credited into the Special Vostro account of the correspondent bank of the partner country, against the invoices for the supply of goods or services from the overseas seller/supplier,” the RBI said.

Indian exporters sending out goods and services through this mechanism should be paid in rupees from the balances in the designated special Vostro account of the correspondent bank of the partner country, the notification said.

“At first glance, the move clearly looks like it is aimed at facilitating easier trade with Sri Lanka. The step to bring about denomination in rupees (for invoicing of exports and imports) definitely suggests that it is aimed at other countries in our neighbourhood so as to remove the dollar exchange rate risk. There is also the element of facilitating trade with Russia, which is also a factor,” a senior economist with a large bank said.

(Source: https://www.business-standard.com/article/finance/rbi-allows-settlement-in-rupee-to-settle-trade-with-russia-sri-lanka-122071101185_1.html)