The Reserve Bank of India (RBI) has announced that foreign investors can now invest surplus funds from their Special Rupee Vostro Accounts (SRVAs) into central government securities, including Treasury Bills. This move aims to help the international use of the Indian rupee and encourage rupee-based investment and trade.
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Key Points
1. Eligible Accounts
SRVAs are special accounts opened by foreign entities with Indian banks for settling international trade transactions in rupees.
2. Investment Scope
Non-residents with SRVAs can invest their surplus rupee balance in central government securities, including Treasury Bills.
3. Benefits
This move opens up a new way for foreign entities to use their rupee balances and may increase demand for government debt instruments.
3. Regulatory Framework
The RBI has added necessary operational instructions in the Master Direction on non-resident investment in debt instruments.
Background
In 2022, the RBI allowed overseas banks to open SRVAs for settling trade transactions in rupees, part of its effort to promote the currency's international use.
Before this, there was a limit of using only 30% of account balances to buy securities with remaining maturities of less than one year, including Treasury Bills. The recent change removes this cap, which allows for unlimited investments in government securities.
Impact
This move is expected to promote rupee-denominated investment and trade while further globalizing the Indian rupee.
The RBI has approved 123 correspondent banks from 30 trading partner countries to open 156 SRVAs with 26 Indian banks to advance bilateral trade in local currencies.
A Special Rupee Vostro Account (SRVA) is a type of bank account that allows foreign banks to hold Indian rupees (INR) for international trade settlements. Here’s a closer look at SRVAs:
What is SRVAs?
SRVA is an extra arrangement to the existing settlement system that uses currencies that can be freely converted. It allows trade in Indian rupees with partner countries and supports exports and imports while lowering reliance on hard currencies like the US Dollar or Pound Sterling.
Key Features
1. Invoicing
All exports and imports must be in INR.
2. Exchange Rate
The exchange rate between INR and the partner country’s currency is decided by the market.
3. Settlement
Final trade settlements are done in INR.
4. Authorized Domestic Dealer Banks
These banks open SRVA accounts for correspondent banks in partner countries.
Benefits
1. Reduced Dependence on Foreign Currencies
SRVAs lower the need for foreign exchange, making India less exposed to external shocks.
2. Increased Use of INR
They promote INR as an international currency, possibly increasing its global acceptance.
3. Simplified Trade
They enable direct trade settlements in INR, cutting transaction costs and forex conversion risks.
Eligibility Criteria
1. Banks from Partner Countries
They must contact authorized domestic dealer banks to open SRVAs.
2. Domestic Banks
Ensure correspondent banks are not from countries listed in the Financial Action Task Force (FATF) Public Statement on high-risk and non-cooperative jurisdictions.
Functioning
1. Opening SRVA Accounts
Foreign banks approach authorized domestic dealer banks, which then seek approval from the Reserve Bank of India (RBI).
2. Multiple SRVAs Accounts
Authorized banks can open multiple SRV accounts for different banks from the same country.
3. Repatriation
Balances in SRVAs accounts can be repatriated in a freely convertible currency or the currency of the beneficiary partner country.
Special Rupee Vostro Accounts (SRVAs) provide many advantages and significantly impact India's economy. Here are some key benefits:
Benefits list of SRVAs
1. Reduced Dependence on Foreign Currencies
SRVAs lessen the need for foreign currency, especially the US dollar, for trade settlements, making India less exposed to external shocks.
2. Increased Use of INR
They promote the Indian rupee in international transactions, potentially increasing its global acceptance and value.
3. Simplified Trade
They allow for direct trade settlements in INR, lowering transaction costs and forex conversion risks.
4. Wider Access to Foreign Financial Markets
They enable domestic banks to access foreign financial markets more broadly and serve international clients without a physical presence abroad.
5. Timely Payments
They ensure timely payments between countries, leading to smoother trade.
Impact list of SRVAs
1. Boosting Rupee's Global Status
SRVAs can strengthen the rupee as an international currency, raising its value and acceptance worldwide.
2. Facilitating Trade with Sanctioned Countries
They support trade with sanctioned countries, such as Russia, by providing an alternative payment method.
3. Reducing Demand for Foreign Exchange
They cut down on the demand for foreign exchange, which can alleviate pressure on India’s foreign exchange reserves.
4. Mitigating Economic Shocks
By reducing reliance on foreign currencies, SRVAs can help India manage economic shocks and maintain stability in the foreign exchange market.
Overall, SRVAs have the potential to change India’s trade landscape by encouraging the use of the rupee, lessening dependence on foreign currencies, and increasing access to foreign financial markets.
Authorized Domestic Dealer
Authorized Domestic Dealer (AD) banks play an essential role in the Special Rupee Vostro Account (SRVA) framework, allowing foreign banks to hold Indian rupees for international trade settlements. Here is a list of possible AD banks that can facilitate SRVAs:
Public Sector Banks
1. State Bank of India
One of India’s largest banks, SBI has a strong presence both domestically and internationally.
2. Bank of India
A leading public sector bank with a broad network of branches and an international presence.
3. Bank of Baroda
A significant public sector bank with a notable presence in India and abroad.
4. Canara Bank
A major public sector bank with a strong branch network and an international presence.
5. Punjab National Bank
A leading public sector bank with extensive branch networks and international reach.
6. Union Bank of India
A public sector bank with a strong presence in India and abroad.
7. UCO Bank
A public sector bank with a wide branch network.
Central Bank of India
8. A public sector bank with a significant domestic presence.
9. Indian Bank
A public sector bank with a broad branch network.
10. Indian Overseas Bank
A public sector bank with a strong presence in India and abroad.
Private Sector Banks
1. HDFC Bank
One of India’s largest private banks with a robust domestic and international presence.
2. ICICI Bank
A leading private sector bank with extensive branch networks and a significant international presence.
3. Axis Bank
A prominent private sector bank with an important presence in India and abroad.
4. Kotak Mahindra Bank
A private sector bank with a strong branch network.
5. Yes Bank
A private sector bank with a strong presence in India.
6. IDFC First Bank
A private sector bank with a growing branch network.
Other Banks
1. Standard Chartered Bank
A multinational bank with a significant presence in India.
2. Citibank N.A.
A major international bank operating in India.
3. J.P. Morgan Chase Bank, N.A.
A well-known international bank with a presence in India.
4. DBS Bank India Limited
A leading international bank in India.
5. Mashreq Bank PSC
An international bank active in India.
6. Abu Dhabi Commercial Bank Ltd
An international bank with operations in India.
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