Will Rupee Vostro Account benefit Udaipur Exporters?

Will Rupee Vostro Account benefit Udaipur Exporters?

Twenty Russian banks have created Rupee Vostro accounts with approved Indian dealer banks to facilitate Rupee trading between the two nations 

Vostro Bank

Jaipur exporters have already begun trading using the Rupee Vostro Account...Udaipur should not be far behind.

The RBI has implemented yet another method to compensate for India's falling Rupee value. The RBI has permitted international trading in Rupees rather than Dollars. The rationale for this is self-evident, in that it will reduce demand for the US Dollar and reduce the pressure on the Rupee. Special Indian Rupee denominated Vostro Accounts have been opened across many Banks in India, namely HDFC, UCO Bank, Union Bank of India, SBI, IDBI, Indian Bank, Axis Bank, Bank of Baroda and Punjab National Bank (PNB). After Russia, neighbours of India, viz. Bangladesh, Sri Lanka and Mauritius are also taking interest to trade in INR.

"As of now there are 20 Russian banks, which have opened a special Rupee Vostro Account with our Bank. All major banks have shared a list of nodal officers to sort out exporters' issues pertaining to these accounts", Santosh Kumar Sarangi

Santosh Kumar Sarangi, The Director General of Foreign Trade said that the Commerce Ministry is in continuous talks with Exporters, Dept of Financial Services and Banks on this issue. He added that Exporters in Jaipur have already begun trading using the Indian Rupee Vostro Accounts.

Udaipur, being another major hub for exports of Handicraft, Marble and Soapstone, should be the next to take up trading in Indian Rupee.

Some other countries in Central Africa, who are facing issues with the volatility of their currency vis a vis the US Dollar are taking interest in the INR trade mechanism.

"This is a new initiative, there are teething troubles relating to the exchange rate mechanism, the repatriation of money. So, it has not fully taken off...But we are constantly in touch with the banks, the RBI and our exporters to ensure that it picks up", Santosh Kumar Sarangi

How will this work?

Vostro simply means "Yours" in Latin, implying that your money is on deposit at our bank. In terms of credit, Russian banks will finance Indian banks. Twenty Russian banks, including Gazpron, Rosbank, Tinkoff Bank, Centro Credit Bank, and Credit Bank Moscow have created Rupee Vostro accounts with approved Indian dealer banks to facilitate Rupee trading between the two nations.

Santosh Sarangi, in his interaction with media said that all Indian banks have been directed to establish nodal offices to resolve challenges encountered by exporters when doing Rupee trade with Russia.

The settlement mechanism is expected to boost trade with Russia and other countries facing US sanctions. As per a study by the Federation of Indian Export Organisations (FIEO), India’s shipment to sanction hit Russia could grow by another $5 billion if the Rupee settlement becomes functional. 

Why did the RBI come up with this solution?

  • The explanation is an increasing supply of Indian rupees. In the past, the month of June 2022 saw a spike in US inflation of up to 9% following the Covid recovery. Because the United States announced an increase in interest rates, international investors began plundering India.
  • Exports become less expensive, but imports grow more expensive for India. The RBI claimed that the elimination of the dollar in India will have an impact on India's GDP and the stock market.
  • The RBI stated that India had two options: reduce demand for trade settlement in rupees or boost supply.

In July 2022, the RBI permitted foreign trade in Rupees, allowing companies to deal with Russia in Rupees while avoiding western sanctions against Moscow.

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