SPECIAL RUPEE VOSTRO ACCOUNT (Syllabus GS Paper 3 – Economy)

Context: India has simplified the payment mechanism for traders importing pulses from Myanmar, requiring them to use the Rupee/Kyat direct payment system through the Special Rupee Vostro Account (SRVA).

Vostro Account: It  is an account that domestic banks hold for foreign banks in the former’s domestic currency, such as the rupee.

• International Banking Services: Domestic banks utilize Vostro Accounts to offer international banking services to clients with global banking needs.

Nostro accounts: A nostro account is a bank account held in another country by a domestic bank, denominated in the currency of the overseas country.

Special Rupee Vostro Account (SRVA)

• About: SRVA is an additional arrangement for settling international trade using Indian Rupees (INR), complementing existing systems of freely convertible currencies.
• Freely Convertible Currency: U.S. Dollar or Pound Sterling, are permitted for conversion by the country's regulations.
• Aim: To reduce reliance on hard (freely convertible) currencies for international trade settlements.
• RBI Approval Requirement: Unlike Rupee Vostro accounts, SRVA requires prior approval from the Reserve Bank of India (RBI) before opening.
• Functionality of SRVA: The SRVA framework operates through three key components: invoicing, exchange rate determination, and settlement.

Mechanism of SRVA

• Invoicing in INR: All exports and imports must be denominated and invoiced in Indian Rupees (INR).
• Market-Determined Exchange Rate: Exchange rates between partner countries' currencies are determined by the market.
• Role of Domestic Banks: Authorized domestic dealer banks open SRVA accounts for correspondent banks of partner countries.
• Payment Procedures: Domestic importers pay in INR into the correspondent bank's SRVA for goods or services.

oDomestic exporters receive export proceeds in INR from the correspondent bank's designated account.

• Regulatory Compliance: All cross-border transactions are reported as per Foreign Exchange Management Act (FEMA), 1999 guidelines.