Govt, RBI propose action plan for facilitating special rupee accounts

The Centre, along with the Reserve Bank of India (RBI), has prepared an action plan for facilitation of special rupee accounts for trade settlements. This includes nudging banks and the Indian Banks’ Association (IBA) to reach out to foreign banks for opening such vostro accounts. Banks have also been asked to process over 115 proposals at the earliest, and to remain cautious while dealing with Russian banks. 

In a meeting held on Wednesday, the government spelt out the plan, which requires the Department of Commerce and the Directorate General of Foreign Trade (DGFT) to encourage trade associations to utilise the RBI’s new rupee settlement mechanism

-- seen as a measure to internationalise the rupee. This is besides the Ministry of External Affairs (MEA) already spreading awareness regarding the framework with overseas entities, people aware of the matter told Business Standard.

The meeting was organised by the finance ministry, and saw attendance from the RBI, MEA, commerce department, and top banks. 

According to the action plan, once banks receive applications from corresponding banks, they have to undertake internal scrutiny and send it to the RBI for approval. The RBI will then expeditiously process the applications.

Banks, collectively, have received over 115 proposals from corresponding banks in Sri Lanka and Commonwealth of Independent States (CIS) nations, which include Russia and Ukraine. Most applications have been received by ICICI Bank, followed by IndusInd Bank, State Bank of India, and UCO Bank, one of the officials in the know of the discussions said.

The meeting comes against the backdrop of the government’s push towards recognising the Indian rupee as an international currency, as well as facilitation of trade with sanctions-hit Russia, and Sri Lanka, which is currently battling an economic crisis.

As of now, no application has been received by the RBI for approval, although some public sector banks are working to make the RBI’s mechanism on settling international payments in rupee operational, the official said.

Since the unveiling of the mechanism in July, top public and private sector banks had reached out to the government and the central bank, expressing fears that the rupee trade mechanism could invite economic sanctions on them by the West, which may lead to seizing of their nostro accounts.

The government had earlier allayed their fears and asked them to exercise commercial discretion, and not deal with sanctioned commodities, entities and banks. 

Even as not many proposals have been received from Russia, banks fear that non-sanctioned Russian entities may come under such restrictions in future, and further complicate matters for lenders.

“After nudging by the government and the RBI, banks may approve proposals received from countries except Russia and send to the RBI. In the case of Russian banks, proposals cleared would be very selective,” the official said. 

During the meeting, banks also sought clarity over certain procedural aspects such as who would be liable in case there is a mismatch in vostro accounts. These queries would be addressed by the RBI soon.

ACTION PLAN

• Banks, IBA to pursue foreign banks to open special rupee VOSTRO accounts
• Bank to quickly process and send applications to RBI for approval
• RBI to ensure prompt processing of applications received from banks
• DGFT to ask trade associations and foreign partners to use the framework
• MEA already spreading awareness about rupee trade settlement mechanism abroad