SBI MD bats for allowing special Vostro surplus in corporate bonds

This arrangement for investment has not really picked up in terms of surplus money in the vostro accounts being invested in g-secs, he added

The Reserve Bank of India (RBI) should allow surplus funds in special vostro accounts to be invested in corporate bonds, State Bank of India Managing Director Challa Sreenivasulu Setty said on Thursday. He argued that expanding the investment scope would be beneficial and not pose any risks.

“The RBI allowed investment of surplus amount in Vostro accounts in T-bills (Treasury bills), and G-secs (government securities) to increase the popularity of the arrangement. We can also request the RBI to enhance the investment basket to include corporate bonds,” Setty said at the sixth national summit of the Associated Chambers of Commerce and Industry of India (Assocham).

However, he noted that the investment arrangement hadn’t fully gained traction as surplus money in Vostro accounts wasn’t widely invested in G-secs.

Ajay Manglunia, managing director and head for investment grade group at JM Financial, echoed this sentiment. “Currently, banks are not significantly involved in the market. If surplus funds from the Vostro account are invested in corporate bonds, the corporate bond market’s size and appetite will improve.”

Indian exporters receive their rupee payments through Vostro accounts, which are held by domestic banks for foreign banks and denominated in their domestic currency. The surplus rupee balance in these accounts can be effectively used for various purposes, including investment in government securities, project financing, and managing export-import transaction flows.

 The RBI had announced on July 11 last year that the surplus in the Vostro account could be invested in government T-bills and securities to encourage rupee-settled trades. The central bank allowed invoicing and payments for international trade in Indian rupee and permitted banks from 22 countries to open Special Vostro Accounts for trade settlements.

Setty also highlighted that non-banking financial companies (NBFCs) currently dominate the corporate bond market, accounting for approximately 67 per cent of total issuances, while involving manufacturing companies in the market poses a challenge.