Countries in these regions have shown interest in opening dedicated Rupee Vostro or SRV accounts, The Indian Express has learned. A Vostro account is an account with a bank that allows customers to deposit funds on behalf of another bank.

The Reserve Bank of India announced guidelines for overseas Indian rupee trade in July. This is also partly aimed at curbing India’s dollar dependence for trade and indirectly strengthening the domestic currency.

The first country to open a special Rupee Vostro account is Russia, which will stop shipments of discounted crude oil to India after March 20 Ukraine War. In September, state-owned UCO Bank received RBI approval to open a special Vostro account with Russia’s Gazprombank, and in October Sberbank and VTB Bank – the largest and second largest bank in Russia – opened special Vostro accounts in their respective branches Delhi.

Since Russia’s invasion of Ukraine, various Western countries and the US have imposed sanctions on Moscow, and the country is also out of the SWIFT system (system used by banks for foreign currency payments). Russia would be interested in trading in rupees for now as other means of payment may not be available.

“The Ministry of Foreign Affairs mentioned its foreign missions in this regard. Interest also came from several countries, notably Sri Lanka, the Maldives, various Southeast Asian, African and Latin American countries,” read the minutes of the September meeting chaired by then-Financial Services Minister Sanjay Malhotra.

“The Economy Ministry also mentioned that due to their interaction in various bilateral meetings/dialogues with partner countries, there was significant interest from various countries in opening SRV accounts,” read the minutes of the meeting The Indian Express said by an RTI application.

Malhotra and T. Rabi Sankar, Deputy Governor of RBI, chaired the meeting, which was attended by representatives of various ministries, RBI, IBA and private and state banks. The Ministry of Foreign Affairs was represented by Vinod Bahade, Director, and Aparna Bhatia, Advisor, representing the Ministry of Economy.

Under the Indian Rupee Arrangement, banks in India open Vostro accounts (an account held by an Indian bank on behalf of another bank) with correspondent banks in the partner country for trading. Indian importers can use these accounts to pay for their imports in rupees. This revenue (from Indian imports) can then be used to pay Indian exporters in Indian rupees. Unlike regular Vostro accounts, INR (Indian Rupee) balances can be held in these dedicated Vostro accounts, rather than being just transit accounts like regular Vostro accounts.

Any rupee trade arrangement between India and a country that has a trade deficit with India may not be viable in the long run. Russia is an exception in this case as the country is under sanctions and could use the Indian rupee to invest here to meet its offset obligations from defense treaties.

India’s current account recorded a deficit of US$23.9 billion (2.8 percent of GDP) in the first quarter of 2022-23, compared to US$13.4 billion (1.5 percent of GDP) in the fourth quarter of 2021-22 and a surplus of US$6.6 billion (0.9 percent of GDP) in the first quarter of 2021/22, the RBI announced in a press statement in September. India’s trade deficits with China, Switzerland, Saudi Arabia, Iraq and Indonesia were large. India’s trade surpluses have been with the US, UAE, Hong Kong, UK and Vietnam.