The Reserve Bank of India (RBI) on Monday announced certain measures to settle international trades in rupee, in order to promote global trade with emphasis on exports from India. The Reserve Bank of India (RBI) on Monday said that it has decided to put in place an additional arrangement for invoicing, payment, and settlement of exports and imports in rupees.
The Reserve Bank of India (RBI) has allowed trade settlements between India and other countries, including Sri Lanka and Russia, in rupees now.
The decision, RBI says, has come in order to promote the growth of global trade with emphasis on exports from India and to support the increasing interest of the global trading community in Indian rupees. “Before putting in place this mechanism, authorized dealer (AD) banks shall require prior approval from the Foreign Exchange Department of Reserve Bank of India, the central bank added.
It also mentioned that the exchange rate between the currencies of the two trading partner countries may be market-determined.
Further, RBI explained that Indian importers undertaking imports through this mechanism shall make payment in rupees 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.
Meanwhile, Indian exporters, undertaking exports of goods and services through this mechanism, shall be paid the export proceeds in rupees from the balances in the designated Special Vostro account of the correspondent bank of the partner country.
Following are the changes made by RBI on international trade settlement in rupees:
Documentation:
The export/import undertaken and settled in this manner shall be subject to usual documentation and reporting requirements. Letter of Credit (LC) and other trade-related documentation may be decided mutually between banks of the partner trading countries under the overall framework of Uniform Customs and Practice for Documentary Credits (UCPDC) and incoterms. The exchange of messages in a safe, secure, and efficient way may be agreed upon mutually between the banks of partner countries.
Advance against exports:
Indian exporters may receive advance payment against exports from overseas importers in Indian rupees through the above 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. The said permission would be in accordance with the conditions mentioned in para-C.2 on Receipt of advance against exports under Master Direction on Export of Goods and Services 2016 (as amended from time to time). In order to ensure that the advance is released only as per the instructions of the overseas importer, the Indian bank maintaining the Special Vostro account of its correspondent bank shall, apart from usual due diligence measures, verify the claim of the exporter with the advice received from the correspondent bank before releasing the advance.
Setting-off of export receivables:
‘Set-off’ of export receivables against import payables in respect of the same overseas buyer and supplier with the facility to make/receive payment of the balance of export receivables/import payables, if any, through the Rupee Payment Mechanism may be allowed, subject to the conditions mentioned in para C.26 on Set-off of export receivables against import payables under Master Direction on Export of Goods and Services 2016 (as amended from time to time).
Bank Guarantee:
The issue of Bank Guarantee for trade transactions, undertaken through this arrangement, is permitted subject to adherence to provisions of FEMA Notification No. 8, as amended from time to time, and the provisions of Master Direction on Guarantees & Co-acceptances.
Use of Surplus Balance:
The Rupee surplus balance held may be used for permissible capital and current account transactions in accordance with mutual agreement. The balance in Special Vostro Accounts can be used for:
– Payments for projects and investments.
– Export/Import advance flow management
– Investment in Government Treasury Bills, Government securities, etc. in terms of extant guidelines and prescribed limits, subject to FEMA and similar statutory provisions.
– Reporting Requirements: Reporting of cross-border transactions need to be done in terms of the extant guidelines under FEMA 1999.
Approval Process:
The bank of a partner country may approach an AD bank in India for the opening of a Special INR VOSTRO account. The AD bank will seek approval from the Reserve Bank with details of the arrangement. AD bank maintaining the special Vostro Account shall ensure that the correspondent bank is not from a country or jurisdiction in the updated FATF Public Statement on High Risk & Non-Co-operative Jurisdictions on which FATF has called for countermeasures. RBI further stated that the above instructions shall come into force with immediate effect.
Meanwhile, the Indian rupee slumped to a new record low of 79.43 against the US dollar on Monday amid weakness in the equities markets. At the interbank foreign exchange market, the partially convertible rupee started trading on Monday at 79.30 against the US dollar against its Friday close at 79.25.
