Vostro accounts yet to register transactions despite government eagerness
To facilitate international transactions, Indian banks offer their customers the option of opening a Vostro account, which is essentially a foreign bank's account held in the local currency
India has not yet recorded a single transaction using Vostro accounts, despite the government's efforts to promote the Indian rupee for International Trade settlement and reduce reliance on the U.S. dollar.
Although six banks have been granted permission and three have opened accounts, transactions have not yet begun.
This delay has largely pointed to several steps that need to be completed for transactions to be seen. This begins with banks having to open Vostro accounts, and the RBI has to put out rules.
Now that these two steps have been completed, importers will have to put money into these trade accounts before they can use it to pay for what they bring in.
Interestingly, officials have been quoted in news reports as saying that banks that trade a lot of dollars don't want to risk getting in trouble with the US, so they don't want to open rupee trade accounts with Russian banks.
Officials say that sanctions put on Russian banks by the rest of the world make it hard for Russian exporters to get money back from their Indian trade accounts.
On July 11, 2022, the Reserve Bank of India (RBI) authorised the use of special Vostro accounts for international trade (export and import) in the Indian rupee.
HDFC Bank and Canara Bank have been granted permission to open special Vostro accounts for rupee commerce with Russia. UCO Bank, Union Bank, and IndusInd Bank are the three additional Indian banks that have regulatory approval for this type of transaction.
In addition, the RBI has approved two Russian banks, Sber Bank and VTB. Both companies have branches in India and will open Nostro accounts.
To facilitate international transactions, Indian banks offer their customers the option of opening a Vostro account, which is essentially a foreign bank's account held in the local currency. These Vostro accounts will receive rupee payments for exports and imports with Russia.
The exporters and importers from both nations will own and profit from this money. To track the flow of funds, you can count on the banks.
In addition to negotiations with Russia, India is negotiating with the United Arab Emirates and Saudi Arabia to accept the Indian rupee for trade settlement.
The RBI and the Finance Ministry are currently working on the groundwork for the circulation of the Indian Rupee. Likewise, the accounts opened by the Russian banks Sber Bank and VTB in India are Nostro accounts.
As a rule of thumb, a currency is considered ‘international’ if it is widely used as a medium of exchange in economies all over the globe. The US dollar is second only to the European Euro as a medium of exchange around the world.
Qatar, the United Arab Emirates, Kuwait, and Oman all accepted the rupee in the early 1960s. The Indian rupee was also used as the unit of account in various payment agreements with eastern European countries. These agreements, however, were dissolved around the middle of the 1960s.