RBI’s new stand is that henceforth rupee can be used for international trade transactions
Vostro Account: On November 15, the central government announced the launch of nine separate Vostro accounts in two Indian banks. Accounts were opened after RBI approval to facilitate rupee trading against the backdrop of US and European sanctions against Russia.
What is a vostro account?
Vostro is the process by which a domestic bank makes payments to a foreign bank in its own currency. For example a bank in Russia opens an account with a bank in India. In it the transaction of Indian currency will be done. In case of India, this currency is Rs. The Reserve Bank of India had earlier prepared to convert import and export transactions into rupees.
RBI’s new stand is that henceforth rupee can be used for international trade transactions. Experts say the move is aimed at facilitating trade with embargoed Russia. More emphasis is placed on exports from India to increase trade. Rupees can be used for invoicing, payment, settlement etc.
Which banks are allowed?
RBI approved nine accounts including IndusInd Bank and UCO Bank.
How does it work?
In case of trade with Russia, funds for export and import of goods go to these Vostro accounts. The beneficiaries of this money will be exporters and importers of both countries. Banks will keep records of money transfers.
(nostro)What is a nostro account?
Vostro and Nostro are two types of accounts that are often referred to together. Vostro and Nostro are technically the same type of account. The difference is who and where the account is opened.
For example, if SBI, an Indian bank, wants to open an account in the US, they open a Nostro account with any US bank. SBI will also accept payments in dollars.
An account opened by an Indian bank in the US is a Nostro account for an Indian bank and they accept foreign currency. While US Bank treats it as a Vostro account.
How is the rupee transaction?
Exporters and importers can use rupees for payments through a separate Vostro account linked to the correspondent bank of whichever country they are dealing with. The exchange rate between the currencies will remain in the market.
India’s total import/export with Russia is $13 billion. This transaction will be made in US dollars. With the Russian embargo in place, it won’t be easy. Now Russian companies can get Indian rupee value for their marketing through Russian banks. Russian banks can open an account in rupees in India (vostro account) and conduct India-Russia trade in Indian currency.
What is the benefit of the rupee to Russia?
Exporters in Russia buy their sales value in Indian Rupees. Banks will set the exchange rate of the Indian rupee against the Russian ruble. India pays Rs. That exporter or other Russian companies can use this to ‘pay’ for goods they import from India. Over time, these can be extended to other countries as well.
Nostro means ‘ours’ and vostro means ‘yours’ in Latin. Therefore, the accounts opened by IndusInd and UCO are Vostro, while Sberbank and VTB Bank of Russia also open Nostro accounts.
What led to the creation of Vostro accounts?
To promote the growth of global trade with an emphasis on exports from India and to support the growing interest of the global trading community in the value of the rupee” On July 11, the RBI introduced a mechanism for international trading in rupees.
The central bank’s move comes amid increasing pressure on India’s currency following Russia’s invasion of Ukraine and sanctions from the United States and the European Union. According to the Central Bank, AD (Authorized Dealer) banks in India are allowed to open RuPay Vostro accounts.