Explained: How India’s vostro accounts will help Sri Lanka tide over its economic crisis

India

oi-Vicky Nanjappa

New
Delhi,
Jan
10:
The
Indian
Bank
which
has
a
long
presence
in
Sri
Lanka
has
been
given
the
regulatory
go
ahead
to
hold
special
Rupee
vostro
accounts
of
three
banks.
This
would
help
in
tiding
over
a
serious
foreign
exchange
crunch,
which
Sri
Lanka
has
been
facing.

The
account
is
expected
to
be
activated
in
about
a
week
by
the
bank
that
is
headquartered
in
Chennai,
Tamil
Nadu.

How
the
vostro
account
will
help
Sri
Lanka:

A
vostro
account
in
local
currency
will
enable
Sri
Lanka
to
import
from
India
and
this
would
ensure
that
the
country’s
Dollar
supply
will
not
dwindle.
The
INR
vostro
facility
is
part
of
the
special
trade
agreement
that
was
finalised
by
the
Reserve
Bank
of
India
in
July
2022.

This
arrangement
would
allow
the
Indian
importers
to
deposit
Rupees
in
vostro
account
that
the
overseas
banks
open
with
banks
in
India
and
clearing
of
dues
to
Indian
exporters
from
the
surplus
balances
in
the
vostro
accounts,
an
Economic
Times

report
said.

Govt
urges
trade
bodies,
banks
to
explore
more
countries
for
trade
in
rupee

This
account
will
also
help
Sri
Lanka
utilise
the
Indian
Rupee
lines
extended
by
India
and
will
also
help
the
island
nation
stabilise
its
economy.

In
July
last
year,
the
RBI
opened
up
Rupee
trade
and
it
came
at
a
time
when
the
dollar
was
appreciating
at
a
high
rate.
This
also
came
in
the
wake
of
sanctions
being
imposed
on
Russia.
In
order
to
mitigate
these
issues,
the
RBI
came
up
with
the
Rupee
trade
mechanism.

How
does
the
mechanism
work:

This
is
a
mechanism
of
using
the
INR
instead
of
Dollars
and
other
currencies
for
international
transactions.
Since
the
US
dollar
is
the
globally
accepted
payment
benchmark,
trade
transactions
are
done
in
the
US
dollar.
With
the
Rupee
trade
mechanism,
the
exporter
can
receive
or
pay
the
remittances
in
Rupees.

If
the
trade
is
done
in
Rupees,
then
the
RBI
will
not
have
to
look
for
buyers
of
the
INR
to
sell
Dollars
in
return.
If
a
buyer
in
India
gets
into
a
transaction
with
a
seller
in
Spain,
he
or
she
will
first
have
to
convert
the
Rupee
into
Dollars
to
make
the
payment
for
the
purchase.
After
that
the
seller
will
have
convert
the
amount
into
Euro
and
both
parties
involved
will
incur
the
conversion
expenses
and
face
the
risk
of
the
foreign
exchange
rate
fluctuations.

The
vostro
account
will
enable
countries
to
get
the
invoice
of
the
goods
and
services
made
in
Indian
Rupees.
This
would
be
possible
if
the
other
party
has
a
vostro
account.
This
would
mean
that
the
counterparty
will
no
longer
have
to
pay
in
Dollars.

Digital
Rupee
a
‘game
changer’
says
SBI
Chairman

What
is
a
vostro
account:

In
a
nut-shell
if
one
were
to
put
it,
a
vostro
account
is
an
inter-bank
or
inter-country
account.
In
case
a
bank
in
India
does
not
have
a
branch
in
another
country,
then
the
bank
opens
an
account
in
another
bank
in
that
country.
This
is
called
as
Authorised
Dealer
and
permission
for
the
same
has
to
be
taken
by
the
RBI.

The
Rupee
vostro
accounts
keeps
a
foreign
entity’s
holdings
in
the
Indian
bank
in
INR
and
when
an
Indian
buyer
wants
to
make
a
transaction
in
Rupees
with
a
trader,
the
amount
will
be
credited
to
this
Vostro
account.
When
the
Indian
exporter
has
to
be
paid
for
the
goods
supplied,
then
the
vostro
account
will
be
deducted
and
the
amount
credited
to
the
exporter’s
account.

What
the
RBI
said.

RBI
Governor,
Shaktikanta
Das
said
on
Friday
last
that
the
Rupee
settlement
for
cross-border
trade
has
a
huge
potential.
He
also
said
that
the
RBI
which
is
India’s
central
bank
has
initiated
talks
with
some
nations
in
South
Asia
to
facilitate
such
trade.

He
went
on
to
add,
‘ we
are
already
in
discussions
with
some
of
the
countries
in
this
region
to
facilitate
rupee
settlement
of
cross-border
trade
in
the
South
Asian
region.
So,
that
can
be
another
area
which
has
a
very
big
potential
in
the
years
to
come.’

Story first published: Tuesday, January 10, 2023, 14:13 [IST]