India: RBI sets up mechanism to settle international trade payments in rupees

All exports and imports under this arrangement may now be invoiced in INR


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Published: Mon 11 Jul 2022, 5:34 PM

The Reserve Bank of India (RBI) on Monday announced a mechanism to settle payments for international trade in rupees, which will help boost India's global trade, especially the country's exports.

"In order to promote growth of global trade with emphasis on exports from India and to support the increasing interest of the global trading community in INR, it has been decided to put in place an additional arrangement for invoicing, payment, and settlement of exports/imports in INR," the RBI said in a letter addressed to 'All Category-I Authorised Dealer Banks'.

"Before putting in place this mechanism, AD banks shall require prior approval from the Foreign Exchange Department of Reserve Bank of India, Central Office at Mumbai," it said.

The new mechanism addresses the issues related to invoicing, exchange rate as well as settlement.

Under the new guidelines, all exports and imports under this arrangement may be denominated and invoiced in Rupee (INR).

The exchange rate between the currencies of the two trading partner countries may be market determined. The settlement of trade transactions under this arrangement shall take place in INR in accordance with the procedure laid down by the RBI.

In terms of Regulation 7(1) of Foreign Exchange Management (Deposit) Regulations, 2016, Authorised Dealer (AD) banks in India have been permitted to open Rupee Vostro Accounts. Accordingly, for settlement of trade transactions with any country, AD bank in India may open Special Rupee Vostro Accounts of correspondent bank/s of the partner trading country.

In order to allow settlement of international trade transactions through this arrangement, it has been decided that "Indian importers undertaking imports through this mechanism shall make payment in INR which shall be credited into the Special Vostro account of the correspondent bank of the partner country, against the invoices for the supply of goods or services from the overseas seller /supplier," the RBI said.

"Indian exporters, undertaking exports of goods and services through this mechanism, shall be paid the export proceeds in INR from the balances in the designated Special Vostro account of the correspondent bank of the partner country," the RBI added.

The export/import undertaken and settled in this manner shall be subject to usual documentation and reporting requirements. Letter of Credit (LC) and other trade-related documentation may be decided mutually between banks of the partner trading countries under the overall framework of Uniform Customs and Practice for Documentary Credits (UCPDC) and incoterms.

Exchange of messages in a safe, secure, and efficient way may be agreed upon mutually between the banks of partner countries, RBI's Chief General Manager Vivek Srivastava noted in the letter.

Indian exporters may receive advance payment against exports from overseas importers in Indian rupees through the Rupee Payment Mechanism.

Before allowing any such receipt of advance payment against exports, Indian banks shall ensure that available funds in these accounts are first used towards payment obligations arising out of already executed export orders/export payments in the pipeline.

In order to ensure that the advance is released only as per the instructions of the overseas importer, the Indian bank maintaining the Special Vostro account of its correspondent bank shall, apart from usual due diligence measures, verify the claim of the exporter with the advice received from the correspondent bank before releasing the advance.

On the approval process, the RBI said "the bank of a partner country may approach an AD bank in India for opening of Special INR VOSTRO account. The AD bank will seek approval from the Reserve Bank with details of the arrangement. AD bank maintaining the special Vostro Account shall ensure that the correspondent bank is not from a country or jurisdiction in the updated FATF Public Statement on High Risk & Non Co-operative Jurisdictions on which FATF has called for counter measures."


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