In news
- 20 Russian banks have opened Special Rupee Vostro Accounts (SRVA) with partner banks in India.
SRVA Arrangement
- A Vostro account is an account that domestic banks hold for foreign banks in the former’s domestic currency, in this case, the rupee.
- For example, if CITI Bank, New York open an account in Rupees in ICICI Bank, India then it would be a Vostro Account for ICICI Bank.
- Domestic banks use it to provide international banking services to their clients who have global banking needs.
- Banking services such as wire transfers, conducting business transactions, accepting deposits and gathering documents on behalf of the other bank.
- Domestic banks gain wider access to foreign financial markets and serve international clients without having to be physically present abroad.
Three important components of SRVA are:
- Invoicing: All exports and imports must be denominated and invoiced in INR.
- Exchange Rate: The exchange rate between the currencies of the trading partner countries would be market-determined.
- Settlement: The final settlement also takes place in Indian National Rupee (INR).
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Vostro VS Nostro Account
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Eligibility Criteria of Banks
- First, Banks from partner countries would approach an authorised domestic dealer bank that would then seek approval from the apex banking regulator for opening an SRVA.
- The domestic banks would be responsible to ensure that the correspondent bank is not from a country mentioned in the updated Financial Action Task Force (FATF) Public Statement on High Risk & Non-Co-operative jurisdictions.
- Authorised banks can open multiple SRV accounts for different banks from the same country.
Need of the SRVA
- The Economic Survey (2022-23) pointed out that SRVA would reduce the net demand for foreign exchange, for the settlement of current account-related trade flows.
- It would also reduce the need for holding foreign exchange reserves and dependence on foreign currencies, making the country less vulnerable to external shocks.
- Indian exporters could get advance payments in INR from overseas clients and in the long-term promote INR as an international currency once the rupee settlement mechanism gains pull.
