The Reserve Bank of India (RBI) has approved HDFC Bank and Canara Bank to open a special vostro account for trade in rupees. Both the approvals are for trade with Russia, banking industry sources said.
So far five Indian banks have received regulatory clearance for rupee trade – UCO Bank, Union Bank and Indusind Bank are the other three. This apart, two Russian banks have the RBI’s approval – Sber Bank and VTB. Both have branch presence in India.
Kolkata-based UCO Bank was the first Indian lender to receive RBI approval to open a special vostro account with Russia’s Gazprombank – which was set up by world’s largest gas producer and exporter Gazprom.
IndusInd Bank has tied up with six Russian banks for trade while the remaining four Indian banks have tied up with one Russian lender each. HDFC Bank’s counterpart in Russia is MTS Bank – the fintech unit of Russia’s largest mobile operator MTS.
The circular said Indian importers undertaking imports through the INR trade mechanism will make payment in the same, which has to 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 had said the exchange rate between the currencies of the two trading partner countries to be market determined.
Indian exporters sending out goods and services through this mechanism should be paid in rupees from the balances in the designated special Vostro account of the correspondent bank of the partner country, the RBI notification said.
According to sources three banks have opened accounts so far though no deal has gone through in this mechanism. The move is aimed at popularising trade in the domestic currency. After the Russia-Ukraine war broke out in early February resulting in the former facing sanctions from Western countries and also the United States, the need to develop an alternative currency for trade was felt.
According to an International Monetary Fund blog, central banks were no longer holding the greenback in their reserves to the earlier extent.
The dollar’s share of global foreign-exchange reserves fell below 59 percent in the final quarter of last year, extending a two-decade decline, according to the IMF’s Currency Composition of Official Foreign Exchange Reserves data.