The Reserve Bank of India (RBI) has granted approvals to banks from 18 countries to open Vostro accounts to settle international trade in rupees, the government has said.
Responding to a question in the Rajya Sabha on March 14, Minister of State for Finance Bhagwat Karad said the central bank had granted 60 approvals in total so far to domestic and authorised foreign banks to open so-called 'Special Rupee Vostro Accounts' of correspondent banks from 18 countries, including those from major nations such as the United Kingdom and Germany.
The 18 countries are as follows: Botswana, Fiji, Germany, Guyana, Israel, Kenya, Malaysia, Mauritius, Myanmar, New Zealand, Oman, Russia, Seychelles, Singapore, Sri Lanka, Tanzania, Uganda, and United Kingdom.
The Indian central bank, in July 2022, had announced the setting up of a mechanism to settle international trade in rupees.
Under the framework, all exports and imports may be denominated and invoiced in rupees, with the exchange rate between the currencies of the two trading partner countries to be market determined. To settle these trade transactions, authorised Indian banks have to open Special Rupee Vostro accounts of correspondent banks of the partner trading country.
The introduction of the rupee trade settlement mechanism by the RBI had come amid increasing pressure on the Indian currency in the wake of Russia's invasion of Ukraine in late February 2022.
The RBI had said last year that the framework would promote growth of global trade and support increasing international interest in the rupee.
According to experts, the rupee settlement mechanism was expected to help India bypass sanctions that prevent the use of a global currency such as the US dollar for trade with certain countries. Russia, for instance, has been heavily sanctioned following its invasion of Ukraine.
The war has led to a surge in global commodity prices, including those of fuel products. India, however, has taken advanage of cheap Russian oil and sharply increased its imports from the warring nation. In fact, India imported more oil from Russia in February than Saudi Arabia and Iraq put together.
Oil apart, India's imports of steel from Russia in April 2022-Janury 2023 were at an eight-year high.