Cross-border Transactions

Cross-border Transactions: The Reserve Bank of India (RBI) recently announced liberalised norms to encourage use of Indian Rupee and local/national currencies to settle cross border transactions.

• About: RBI has signed Memoranda of Understanding (MoUs) with the UAE, Indonesia, and Maldives to promote transactions in local currencies, including INR.
• Special Rupee Vostro Account (SRVA): Introduced in July 2022 to boost INR usage in trade transactions.
• Multiple foreign banks have opened SRVAs with Indian banks.
• About FEMA: The Foreign Exchange Management Act (FEMA) of 1999 regulates the flow of payments to and from India. The Reserve Bank of India (RBI) is empowered to make regulations under FEMA. The revised FEMA regulations includes:

o Authorized Dealer Banks' Overseas Branches: Can open INR accounts for non-residents to settle permissible current and capital account transactions.

o Non-Residents: Can use balances in repatriable INR accounts (Special Non-resident Rupee account, SRVA) for transactions with other non-residents and for foreign investments, including FDI in non-debt instruments.

• Exporters' Flexibility: Indian exporters can open foreign currency accounts overseas to settle trade transactions, receive export proceeds, and pay for imports using these proceeds.
• Purpose of Changes: Aimed at promoting cross-border transactions in INR and local currencies.
• Follows a review of the 1999 FEMA regulations by the RBI and the central government.
• About: RBI is the central bank of India whose primary function is to manage and govern the financial system of the country.

o It is a statutory body established in the year 1935 under the Reserve Bank of India Act, 1934.

o The central bank regulates the issue and supply of the Indian rupee.