RBI introduces mechanism for international trade settlements in rupees

The Reserve Bank of India (RBI) on Monday asked banks to put in place additional arrangements for export and import transactions in Indian rupees.

"In order to promote growth of global trade with emphasis on exports from India and to support the increasing interest of global trading community in INR, it has been decided to put in place an additional arrangement for invoicing, payment, and settlement of exports / imports in INR," RBI said in a circular.

Before putting in place this mechanism, banks will require prior approval from the Foreign Exchange Department of the Reserve Bank of India (RBI), the central bank said in a circular.

Invoicing, exchange rate and settlement can be done in rupee under the new framework, RBI said.

Authorised banks in India have been permitted to open Rupee Vostro Accounts for settlement of trade transactions with any country. Indian importers undertaking imports through this mechanism shall make payment in INR which shall be credited into the Special Vostro account of the correspondent bank of the partner country, against the invoices for the supply of goods or services from the overseas seller /supplier. Indian exporters, undertaking exports of goods and services through this mechanism, shall be paid the export proceeds in INR from the balances in the designated Special Vostro account of the correspondent bank of the partner
country.

The export / import undertaken and settled in this manner shall be subject to usual documentation and reporting requirements, RBI added.

Indian exporters, RBI said, may receive advance payment against exports from overseas importers in Indian rupees through the Rupee Payment Mechanism. "Before allowing any such receipt of advance payment against exports, Indian Banks shall ensure that available funds in these accounts are first used towards payment obligations arising out of already executed export orders / export payments in the pipeline."

RBI further said that the balance in Special Vostro Accounts can be used for Payments for projects and investments; Export/Import advance flow management; and Investment in Government Treasury Bills, Government securities, etc. in terms of extant guidelines and prescribed limits, subject to FEMA and similar statutory provision.