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RBI's new mechanism to enable international trade settlement in Indian rupee

RBI's new mechanism to enable international trade settlement in Indian rupee

RBI's new mechanism to enable international trade settlement in Indian rupee
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By CNBC-TV18 Jul 11, 2022 7:32:29 PM IST (Published)

For settlement of export and import transactions, authorised dealer (AD) banks in India can open special rupee vostro accounts of correspondent banks of the partner trading country.

The Reserve Bank of India (RBI) on July 11 said it has decided to put in place an additional arrangement for invoicing, payment and settlement of exports or imports in the Indian rupee.

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Accordingly, all exports and imports under the new arrangement can be denominated and invoiced in Indian rupee, the exchange rate between currencies under the new arrangement may be market-determined. Before putting in place this mechanism, AD (authorised dealer) banks shall require prior approval from the Foreign Exchange Department of Reserve Bank of India, in Mumbai.


For settlement of trade transactions with any country, authorised dealer banks in India may open special rupee vostro accounts of correspondent banks of the partner trading country. 

Indian importers undertaking imports through this mechanism shall make payments in the Indian rupee, 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.

"Indian exporters, undertaking exports of goods and services through this mechanism, shall be paid the export proceeds in INR from the balances in the designated Special Vostro account of the correspondent bank of the partner country," the RBI said.

Documentation

The letter of credit and other trade-related documentation may be decided mutually between banks of the partner trading countries under the overall framework of Uniform Customs and Practice for Documentary Credits and Incoterms. Exchange of messages in a safe, secure, and efficient way may be agreed upon mutually between the banks of partner countries, RBI said.

Advance against exports

Indian exporters may receive advance payment against exports from overseas importers in Indian rupee through the above rupee payment mechanism. Before allowing any such receipt of advance payment against exports, Indian banks shall ensure that available funds in these accounts are first used towards payment obligations arising out of already-executed export orders or export payments in the pipeline, the central bank said.

"In order to ensure that the advance is released only as per the instructions of the overseas importer, the Indian bank maintaining the Special Vostro account of its correspondent bank shall, apart from usual due diligence measures, verify the claim of the exporter with the advice received from the correspondent bank before releasing the advance," the RBI said.

Setting-off of export receivables

Set-off of export receivables against import payables in respect of the same overseas buyer and supplier with the facility to make/receive payment of the balance of export receivables/import payables, if any, through the rupee payment mechanism may be allowed.

Use of surplus balance

The apex bank said the rupee surplus balance held may be used for permissible capital and current account transactions in accordance with mutual agreement. Also, the balance in special vostro accounts can be used for payments for projects and investments, export or import advance flow management, investment in government treasury bills, government securities, etc.

Approval process

The bank of a partner country may approach an authorised dealer bank in India for the opening of special INR vostro account. The dealer bank will seek approval from the RBI with details of the arrangement, the central bank said.

“(The) AD bank maintaining the special Vostro Account shall ensure that the correspondent bank is not from a country or jurisdiction in the updated FATF Public Statement on high risk & non-co-operative Jurisdictions on which FATF has called for counter-measures," it said.

The directions will come into force with immediate effect.

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