In a bid to facilitate rupee trade with Russia, the Reserve Bank of India (RBI) has approved the opening of special vostro accounts by two more lenders, HDFC Bank and Canara Bank, according to media reports. This paves the way for cross-border trade in the Indian currency, especially between New Delhi and Moscow. Three other Indian banks — State Bank of India, IndusInd Bank and UCO Bank — had earlier received the necessary permissions from the regulator to roll out rupee trades.
In July, the central bank had introduced a new arrangement for settling international trades in rupees. The mechanism, enabling the invoicing, payment and settlement of exports and imports in rupees, is aimed at promoting trade. It would also restrict dollar outflows at a time when the local unit has been depreciating. At the time, SBI had said it was opening a special rupee vostro account to handle Russia-related trade settlements. The state-owned lender said it is “making necessary arrangements and processing requests received from various banks, including Russian banks, duly following RBI guidelines”.
A vostro account is an account a correspondent bank holds on behalf of another bank. These accounts are an essential aspect of correspondent banking in which the bank holding the funds acts as custodian for or manages the account of a foreign counterpart.
As is known, India has been importing bigger amounts of crude oil from Russia after sanctions imposed on the latter over Ukraine war. As such, enabling importers to pay for buying expensive oil and coal in rupees would help preserve dollar assets.
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