RBI Allows Additional Rupee Vostro Accounts To Settle Import Trade

Banks can open an additional special Vostro account to ensure settlement of their import transactions in the Indian rupee, the Reserve Bank of India said in a notification on Tuesday.

"...to provide operational flexibility, the facility of opening an additional special current account by the AD Category-I banks for its constituents may be extended for settlement of their export as well as import transactions," the central bank said.

A vostro account is an account that domestic banks hold for foreign banks in the former's domestic currency, in this case, the rupee. While nostro accounts with debit balances are considered cash assets, vostro accounts with a credit balance are considered liabilities.

This is seen as part of a strategic plan by the RBI to internationalise the rupee.

On May 30, the central bank said in its annual report that it has finalised a strategic plan for FY25 and envisaged the liberalisation of the external commercial borrowing framework and 'Go-live' for Phase I of the software platform for ECBs and trade credit reporting and approval projects.

Since the Russia-Ukraine war, India has been pushing for the settlement of bilateral trade using the rupee. In July 2022, the RBI allowed the settlement of international trade in rupees.

For this, Indian banks were required to open and maintain special rupee vostro accounts of the trading partner's banks. These keep foreign banks' holdings in Indian banks in the Indian currency.

For instance, when an Indian company enters into a transaction and makes payment to a foreign company in rupees, the amount is credited to the Vostro account. Similarly, the amount due to be paid to an Indian company is deducted from a Vostro account and credited to the regular account.