Special Vostro Rupee Accounts

What is in the News ?

• The Reserve Bank of India (RBI) has permitted banks from 18 countries to open Special Vostro Rupee Accounts (SVRAs) to settle payments in rupees, the government said.
• These 18 nations include Botswana, Fiji, Germany, Guyana, Israel, Kenya, Malaysia, Mauritius, Myanmar, New Zealand, Oman, Russia, Seychelles, Singapore, Sri Lanka, Tanzania, Uganda and the United Kingdom.
• SVRAs could be set up by the banks by approaching the Authorised Dealer (AD) banks in India and it may then get permission from the RBIafter completion of the due process. 
• The SVA process began in 2022 when RBI announced, “it has been decided to put in place an additional arrangement for invoicing, payment, and settlement of exports/imports in INR [Indian rupees].”

Special VOSTRO Rupee Accounts (SVRA)

• SVRA is an account that domestic banks hold for foreign banks in the former’s domestic currency, the rupee, which allows domestic banks to provide international banking services to their clients who have global banking needs without having to be physically present abroad.
• RBI had issued a framework for Trade settlement in Rupee (in July 2022) through SVRA. 
• This is a step towards Internationalization of Rupee.

Rupee Internationalization

• It is a process of increasing rupee acceptance across the world for cross-border trading.
• Advantages :
  • India will have to rely less on foreign currencies and holding foreign exchange reserves; 
  • Reduced Vulnerability to External Shocks and Currency Risks; and
  • Increasing bargaining power of Indian Enterprises

Practice Questions for Prelims

Q. Convertibility of rupee implies (2015)

(a) being able to convert rupee notes into gold
(b) allowing the value of rupee to be fixed by market forces
(c) freely permitting the conversion of rupee to other currencies and vice versa (d) developing an international market for currencies in India

Ans: (c)

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