RBI Announces Mechanism For Settlement of International Trade in Indian Rupees. Here’s How It Will Work

Chennai: The Reserve Bank of India (RBI) on Monday announced an additional framework for invoicing, payment, and settlement of exports/imports in Indian rupees.

According to the RBI, the authorised dealer banks should get the prior approval from its Foreign Exchange Department. The central bank said the measure is taken to promote growth of global trade with emphasis on exports from India and to support the increasing interest of the global trading community in the Indian rupee. The RBI said the broad framework for cross border trade transactions in Indian rupee under Foreign Exchange Management Act, 1999 (FEMA) include:

all exports and imports under this arrangement may be denominated and invoiced in Indian rupee,
the exchange rate between the currencies of the two trading partner countries may be market determined,
and the settlement of trade transactions under this arrangement shall take place in Indian rupee.

Check RBI’s notification in this regard here:

How will the new mechanism work?

The RBI said in terms of Regulation 7(1) of Foreign Exchange Management (Deposit) Regulations, 2016, authorised dealer banks in India have been permitted to open Rupee Vostro accounts.
Accordingly, for settlement of trade transactions with any country, the authorised dealer banks in India may open Special Rupee Vostro Accounts of correspondent bank/s of the partner trading country.
Indian importers undertaking imports through this mechanism shall make payment in rupee which shall be credited into the Special Vostro account of the correspondent bank of the partner country, against the invoices for the supply of goods or services from the overseas seller /supplier.
Indian exporters, undertaking exports of goods and services through this mechanism, shall be paid the export proceeds in rupee from the balances in the designated Special Vostro account of the correspondent bank of the partner country.
The RBI has also listed out the framework in case of advance against exports, setting of export receivables against import payables, bank guarantee, use of surplus balance in the Special Vostro Accounts and others.