International Trade Settlement in Indian Rupees

A Special Rupee Vostro account refers to money of the foreign entity deposited in an Indian bank, in INR. This account shall record the money owed to or maintained by a third party, typically another bank, but can also be a company or an individual. Under this arrangement, when an Indian importer undertaking imports wants to make a payment to the supplier/seller in INR, the amount will be credited into the Special Rupee 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. Similarly, when an Indian exporter has to receive payment for goods and services in INR, this Special Rupee Vostro account will be deducted and the amount will be credited in the Indian exporter’s regular account. Export/import undertaken and settled in this manner shall be subject to usual documentation and reporting requirements as under the extant guidelines under the Foreign Exchange Management Act, 1999. 

  

The bank of a partner country; e.g. German banks may approach an AD bank in India for opening of Special Rupee Vostro account. The AD bank then will seek approval from the RBI with details of the arrangement and subsequent to the approval granted by the RBI, the Special Rupee Vostro account in the Indian AD bank by a German bank shall be opened. The trade settlement shall then be commenced between the parties in INR. The exchange rate between the currencies of two trading partner countries may be market determined.

  

Indian exporters may receive advance payment against exports from overseas importers in Indian rupees through the above Rupee Payment Mechanism. Prior to releasing such advance as per the instruction of the overseas importer, the banks shall be required verify the claims of the Indian exporter through their usual due diligence and ensure available funds in such Vostro account before allowing any such advance payment against exports, and that such funds have been first used towards obligations arising out of already executed export orders.

  

Furthermore, the INR surplus balance held can be used for permissible capital and current account transactions in accordance with mutual agreement. The balance in the Special Rupee Vostro account can be used for payments for projects and investments; export/import advance flow management; and investment in government bonds.

This circular is relevant for the partner country’s banks and the AD banks of India, who are willing to settle the invoices of imports/exports in INR.