In News: Banks from 18 countries have been permitted by the Reserve Bank of India (RBI) to open special vostro rupee accounts (SVRAs) for settling payments in Indian rupees.

  • The SVRAs could be set up by banks of partner countries by approaching authorised dealer (AD) banks in India that may get permission from the RBI after the due procedure.
  • The RBI had granted approval to “domestic and foreign AD Banks in 60 cases for opening SRVAs of banks from 18 nations — Botswana, Fiji, Germany, Guyana, Israel, Kenya, Malaysia, Mauritius, Myanmar, New Zealand, Oman, Russia, the Seychelles, Singapore, Sri Lanka, Tanzania, Uganda and the United Kingdom”.
  • Of the 18 countries mentioned, Russia has been vocal in using trade in local currency for the overall process of “de­-dollarisation”.
  • But India has been supporting the idea of trade in local currency mainly to boost exports.
  • The process of SVRAs began in July 2022 when the RBI announced that, “it has been decided to put in place an additional arrangement for invoicing, payment, and settlement of exports/imports in INR [Indian rupees]”. 
  • The announcement came against the backdrop of the commodities crisis triggered by the Western sanctions against Russia after President Vladimir Putin launched the “special military operation” against Ukraine in February 2022.
  • Trade in local currencies have been mooted as a solution to avoid the current wave of wartime international sanctions that are hampering supply chains and global trade flows.
  • A vostro account is an account that domestic banks hold for foreign banks in the former’s domestic currency, in this case, the rupee.
    • Domestic banks use it to provide international banking services to their clients who have global banking needs.
  • The SRVA is an additional arrangement to the existing system that uses Freely convertible currencies and works as a complimentary system.
    • The existing systems require maintaining balances and position in such currencies like US dollar and pound to facilitate trade.