RBI Opens Door For Foreign Rupee Surplus To Flow Into Government Bonds

Reserve Bank of India has allowed persons resident outside India holding special rupee vostro accounts for international trade settlement to invest their surplus rupee balances in government securities, including treasury bills, the central bank said in a press release.

This step expands investment options for foreign entities engaging in rupee-based trade settlement and is aimed at enhancing the attractiveness of the domestic currency in global trade.

The special rupee vostro account mechanism, introduced in July 2022, was aimed at promoting international trade settlement in Indian rupees by enabling foreign banks to hold rupee accounts with Indian banks. The move allowed exporters and importers to settle transactions in the domestic currency, reducing reliance on hard currencies like the US dollar.

Authorised Dealer Category-I banks have been directed to inform relevant customers about the change. The operational guidelines have been incorporated into the updated master direction on non-resident investment in debt instruments, which comes into immediate effect.

The move is expected to help channel idle rupee balances into the Indian government securities market, potentially boosting demand for sovereign debt and further internationalising the rupee.