To facilitate rupee trade with Russia, the Reserve Bank of India (RBI) has reportedly approved the opening of dedicated Vostro accounts by two other lenders, HDFC Bank and Canara Bank. This paves the way for cross-border trade in Indian currency, particularly between New Delhi and Moscow. Three other Indian banks – State Bank of India, IndusInd Bank and UCO Bank – had previously received the necessary approvals from the regulator to launch rupee trading.
In July, the central bank introduced a new rule for doing international business in rupees. The mechanism, which allows invoicing, payment and settlement of exports and imports in rupees, is intended to encourage trade. It would also limit dollar outflows at a time when the local unit is depreciating. At that time, SBI had announced that it would open a special rupee Vostro account to process trades related to Russia. The state lender said it was “making the necessary arrangements and processing inquiries received from various banks, including Russian banks, under RBI guidelines.”
A Vostro account is an account held by a correspondent bank on behalf of another bank. These accounts are a key aspect of correspondent banking, where the bank holding the funds acts as a custodian for a foreign counterparty or administers a foreign counterparty’s account.
As is well known, India imports larger quantities of crude oil from Russia after sanctions against Russia Ukraine War. Allowing importers to buy expensive oil and coal in rupees would help preserve dollar assets.
FE office
