RBI circular on SCA for exporters unclear on many aspects

The Reserve Bank of India (RBI) has allowed AD Category-I banks maintaining special vostro accounts (SVA) in Indian rupees (INR) to open an additional special current account (SCA) for their exporter constituents exclusively for settlement of their export transactions. The RBI says that the idea is to provide greater operational flexibility to exporters but few exporters are clear on how that will come about. Indeed, they have many questions.
 

In July 2022, the RBI introduced an arrangement for invoicing, payment, and settlement of export/import transactions in INR through SVA, mainly with a view to facilitate trade with Russia following fears that the United States and its allies will make trade with Russia in convertible currencies near impossible. Those instructions were not Russia specific and so, some banks from Russia and some other countries have since opened SVAs with Indian banks. However, as expected, that move is not a great success because of inherent limitations of such an arrangement.  Now, the RBI is tweaking the scheme and its latest FED circular no. 08 dated November 17, 2023, looks like a feeble and tentative attempt in the hope of making the SVA arrangement work better.
 

The exporters, however, see no point in having a SCA exclusively for settlement of export transactions because the credits will simply keep accumulating in such accounts without earning any interest on the outstanding balances. Perhaps, the RBI wanted to say that the permitted credits in such SCAs will be only from realisation of export proceeds through SVAs but has ended up saying something else. Anyway, the exporters will be better off using the export proceeds to liquidate their post-shipment credit liabilities or crediting the funds to their cash credit accounts thus reducing their interest liabilities.
 

The circular is silent on how the balances in the SCA can be utilised. However, even assuming that they can be utilised for making payment for imports, there is no clarity on how that will help exporters when  they can very well make payments for imports through any other current account. What special operational flexibility the SCA gives is unclear.  Clarity is missing on whether export proceeds received through any SVA by any bank can be credited to the SCA maintained with any bank, and also whether SCA can be opened only at the branch where SVA is being maintained or any branch of the bank maintaining any SVA. Whether the RBI is giving the facility to pool all the export proceeds received through any SVA and use the credit balance so built up for import payments through any other SVA is also unclear.
 

As matters stand, most banks have not issued internal instructions regarding opening the SCA. It appears they also need answers to some questions from the RBI and will take some more time to finalise the mechanisms for transfer of funds from any SVA to any SCA and vice-versa.
 

So, the exporters should see the RBI circular as little more than a preliminary attempt to make imports and exports in INR through SVA work somehow or the other. More instructions should follow from the RBI regarding the permitted credits and permitted debits in such SCAs. 
 

Hopefully, the RBI will take extra care to be clear-cut and comprehensive with its instructions avoiding loose wordings that characterise its circular referred above.

Email : tncrajagopalan@gmail.com