Making Rupee Global: RBI Makes It Easier For Foreigners To Invest In India — Here's How
The RBI will permit wider use of special rupee vostro account (SRVA) balances by making them eligible for investment in Indian corporate bonds and commercial papers.
The Reserve Bank of India on Wednesday announced a slew of measures to promote the internationalisation of the rupee. These include allowing foreigners to invest money stored in rupee vostro accounts in corporate bonds.
"We have been making steady progress in the use of Indian Rupee for international trade. Three measures are proposed in this regard," Governor Sanjay Malhotra said on Wednesday.
Under the initiative, banks that are authorised to deal in foreign exchange transactions will be permitted to lend in Indian rupee to non-residents from Bhutan, Nepal and Sri Lanka for cross border trade transactions.
This means NRIs running businessess in these neighbouring countries will be able to raise working capital or fresh funds from Indian banks. Several large Indian lenders like State Bank of India have branches in these countries.
The RBI will establish transparent reference rates for currencies of India’s major trading partners to facilitate INR based transactions.
The central bank is looking at the Indonesian Rupiah (IDR), United Arab Emirates Dirham (AED), among others to establish reference rates, T Rabi Shankar, part time Member of Sixteenth Finance Commission and RBI Deputy Governor, said in a press conference.
"The objective is to reduce crossing currencies to get rates. We have to work out ways to set a benchmark reference rate," he said.
Cross currency means a currency pair or transaction that does not involve the US dollar.
Lastly, the RBI will permit wider use of special rupee vostro account (SRVA) balances by making them eligible for investment in Indian corporate bonds and commercial papers.
SRVA is an account opened by a foreign bank with an Indian bank to facilitate international trade settlements directly in the rupee. These measures will help reduce dependence on the US dollar and thus shield the economy from sudden exchange rate fluctuations and currency crises.
Such vostro accounts have been used by Russian companies involved in energy deals with India. Western powers like the US and the European Union have pressed New Delhi to curtail trade with Moscow, which is under a tight sanctions regime since the 2022 invasion of Ukraine that has locked out the country from the dollar-dominated global financial system
Russian funds in Indian banks were being invested into Indian government securities, as per media reports. Russia has a large trade surplus with India, meaning it has extra rupee lying in its kitty without much demand elsewhere.
These RBI measures will help reduce pressure on forex and keep the current account deficit at a comfortable level.
India has been trying to promote the use of the rupee to shield against potential geopolitical threats, including a pattern of unilateral sanctions by the US.
