India expands Rupee commerce outside Russia

India is in negotiations with Sri Lanka, the Maldives, and several south-east Asian, African, and Latin American nations to begin trading in the Indian Rupee, similar to the agreement being worked out with Russia.

The Indian Express has learned that the nations in these regions have shown interest in creating Special Rupee Vostro, or SRV, accounts. An account kept by a bank called a “Vostro” enables its clients to make deposits on behalf of other banks.

In July, the Reserve Bank of India released rules for Indian Rupee exports. This also serves to indirectly boost the indigenous currency while reducing India’s reliance on the dollar for trade.

Russia, which has expanded its supply of cheap oil to India after the Ukraine conflict, is the first nation to register a unique Rupee Vostro account. Government-owned UCO Bank gained RBI clearance in September to create a special Vostro account with Russian bank Gazprombank, and in October, the biggest and second-largest Russian banks, Sberbank and VTB Bank opened special Vostro accounts in their respective Delhi offices.

Since Russia invaded Ukraine, the US and other Western nations have imposed sanctions on Moscow, and the nation has also been removed from the SWIFT system (a system used by banks for payments in foreign currency). Rupee trading would be of interest to Russia for the time being since other forms of payment may not be accessible.

The Ministry of External Affairs brought up its overseas operations in this context. The minutes of the meeting in September, which was presided over by Sanjay Malhotra, the then-secretary of the Department of Financial Services, noted that interest had also come from several nations, including Sri Lanka, the Maldives, as well as various Southeast Asian, African, and Latin American nations.

The minutes of the meeting, which The Indian Express obtained through an RTI request, stated that “The Department of Economic Affairs also mentioned that based on their interaction in various bilateral meetings/dialogues with partner countries, there was considerable interest from various countries in opening SRV accounts.”

Following the Indian Rupee Agreement, Indian banks will establish Vostro accounts—accounts that they will hold on behalf of other banks—with their correspondent banks in the partner country to do business. These accounts accept rupee payments from Indian importers for their purchases. The Indian Rupee earned from these purchases may subsequently be used to compensate Indian exporters. In contrast to standard Vostro accounts, which are just transit accounts, these Special Vostro Accounts permit the holding of INR (Indian Rupee) balances.

Long-term viability may not be possible for any rupee trade agreement between India and a nation that has a trade deficit with India. Russia is an exception in this situation since it is subject to sanctions and may utilize investments made in India to fulfill its offset commitments under defense contracts.

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