The Reserve Bank of India (RBI) is aiming to make the Rupee more popular in global trade as the Indian currency continues to weaken against the US Dollar. On Thursday, the RBI proposed several key changes to the Foreign Exchange Management Act (FEMA) rules to provide greater flexibility for Indian exports and global traders to settle their transactions in Rupees instead of Dollars.
In a circular, the RBI permitted non-residents to open Rupee-denominated accounts overseas through branches of Indian banks. These accounts can be used to pay or settle transactions with Indian exporters. Additionally, Indian exporters have been allowed to open accounts in any foreign currency overseas for the settlement of transactions. This includes receiving export proceeds, which can then be used to pay for imports.
The move is significant as the Rupee continues to weaken against the Dollar. Currently, it is hovering at a lifetime low due to the strengthening of the US Dollar and foreign investor outflows from Indian markets. As of now, the Rupee is trading at Rs 86.58 against the Dollar, compared to Rs 84.92 a month ago, according to data.
“These amendments are steady steps toward making the Indian Rupee more popular globally and equipping our exporters with greater flexibility in concluding their transactions overseas. Moreover, these amendments reflect the efforts being made to make the Special Non-Resident Rupee (SNRR) account more attractive for overseas entities, thereby increasing investor confidence,” said Akash Chauhan, Director of Regulatory Affairs at IndusLaw.
This initiative is part of the RBI’s broader effort to position the Rupee as a cross-border currency which would significantly reduce currency risk for Indian parties. In 2022, the RBI introduced the Special Rupee Vostro Account (SRVA), enabling Indian banks to settle international trade in Rupees.
A Special Rupee Vostro Account (SRVA) is a bank account that allows Indian banks to settle international trade in Rupees. These accounts can be opened by foreign banks with their Indian counterparts overseas, enabling clients of the foreign banks to settle their trades in Rupees. The RBI has already signed Memoranda of Understanding (MoUs) with the central banks of the United Arab Emirates, Indonesia, and the Maldives to promote the SRVA route.
On the other hand, SNRR accounts are designed for non-residents with business interests in India. These accounts can be used to settle transactions within the country.
The circular also allows non-residents to use these overseas Rupee accounts to make Foreign Direct Investments (FDI) into India in non-debt instruments. FDI is an investment route for foreigners seeking to buy equity in unlisted Indian companies.
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