The Reserve Bank of India (RBI) has taken steps to simplify and accelerate trade settlements in rupees with Russia, a move that comes amid growing interest in rupee-rouble transactions following recent global trade developments, as reported by TOI.
Why rupee-rouble trade is in focus
The spotlight on rupee-rouble trade intensified after US President Donald Trump announced higher tariffs on Indian exports. In response, RBI on August 5 allowed authorised dealer (AD) category-1 banks to open special rupee vostro accounts (SRVAs) for their foreign correspondent banks without prior approval.
On August 12, RBI further relaxed rules, permitting funds in these accounts to be invested freely in government securities and treasury bills.
What is a vostro account?
A vostro account is a domestic bank account maintained for a foreign bank, holding the foreign bank’s funds in local currency.
“An SRVA facilitates oil trade with Russia by enabling transactions to be settled directly in rupees without converting through third-party currencies like the dollar,” experts note.
An Indian bank maintaining an account in Indian rupees for a Russian bank is called a vostro account.
How the RBI move helps
Previously, banks needed RBI permission to open SRVAs, slowing down trade settlements. The new guidelines let banks open accounts independently, streamlining invoicing, payments, and settlements for rupee-based international trade.
Impact on trade with Russia
In the oil sector, Russian exporters can hold Indian rupees in SRVAs maintained with Indian banks. This allows Indian importers to pay for oil shipments directly in rupees, bypassing the dollar. The change reduces currency conversion costs, exchange rate risks, and payment delays.
Challenges in rupee-rouble settlements
India’s oil-driven trade deficit with Russia means rupees accumulate with Russian exporters, complicating settlements.
Many Russian firms prefer dollar payments despite being exempt from US sanctions.
Meanwhile, the tightly controlled and volatile rouble often forces conversions through the dollar, and Western sanctions restricting access to SWIFT create operational hurdles.
How challenges are being addressed
To navigate these issues, RBI and government bodies are:
Developing a dynamic rupee-rouble exchange mechanism to avoid costly dollar conversions.
Establishing payment confirmation systems and exploring alternative financial messaging networks to replace SWIFT.
Allowing Russian entities to invest surplus rupee balances from SRVAs in Indian government securities, bonds, equity, and infrastructure projects.
Proposing use of rupee balances for third-country exports, letting Russian suppliers buy Indian goods while receiving payments in other currencies. Discussions are also underway for trilateral settlement mechanisms involving the UAE.
These measures aim to make rupee-rouble trade more efficient while mitigating operation.
Source Name : Economic Times