Special Rupee Vostro Accounts (SRVAs)

Why in the News ? 

RBI has eased regulations, allowing banks to open Special Rupee Vostro Accounts (SRVAs) without seeking prior approval. This move is aimed at boosting international trade settlements in Indian Rupee (INR), especially amid growing global uncertainties such as tariff threats by the U.S. on BRICS nations.

What is a Vostro Account?

• A Vostro Account refers to an account maintained by a domestic bank on behalf of a foreign bank, denominated in the local currency (such as INR in India).
• Example: If a Russian bank wants to trade with India in INR, it can open a Vostro account in an Indian bank.

About Special Rupee Vostro Account (SRVA)

• In July 2022, the RBI launched the Special Rupee Vostro Account (SRVA) system to enable settlement of international trade using Indian Rupees.
• Under this system, foreign banks can open an SRVA with Indian banks to settle trade transactions in INR instead of U.S. dollars or other hard currencies.

How SRVAs Work?

1. In India, the importer settles the payment in INR, which is deposited into the partner nation’s bank account under the SRVA arrangement.
2. The exporter from the partner country receives payment in local currency after conversion from INR.
3. Balances in SRVAs can also be used for:

• Payments for projects and investments.
• Export/import advance flow management.
• Investments in government securities, Treasury Bills, etc.

Benefits of SRVAs:

• Reduces dependence on the U.S. dollar and other hard currencies.
• Supports trade with sanctioned or dollar-restricted countries (e.g., Russia, Iran).
• Boosts Rupee internationalization by making INR a preferred currency for global trade.
• Safeguards India’s trade interests amid U.S. tariff threats and geopolitical tensions.
• Firmly bonds BRICS trade relations as India look to curb reliance on US dollar. 

Conclusion

The move to promote Special Rupee Vostro Accounts (SRVAs) is a step towards making INR a global trade currency, reducing vulnerability to external shocks like U.S. tariff threats. It strengthens India’s trade ties with BRICS and other emerging economies, while also advancing the long-term goal of Rupee internationalization.