Vostro accounts

Vostro accounts

Vostro accounts

#GS 03 External Sector

For Prelims

Vostro accounts

  • A vostro account is an account that domestic banks hold for foreign banks in the domestic bank’s national currency.
  • These are used by domestic banks to provide international banking services to their clients who have global banking needs.
  • As the Economic Survey (2022-23) said the framework could largely reduce the “net demand for foreign exchange, the U.S. dollar in particular, for the settlement of current account related trade flows”.
  • 20 Russian banks, including Rosbank, Tinkoff Bank, Centro Credit Bank and Credit Bank of Moscow have opened Special Rupee Vostro Accounts (SRVA) with partner banks in India.

Special Rupee Vostro Accounts (SRVA)

  • It allows a bank (or an intermediary) to facilitate wire transfer, conduct business transactions, accept deposits and gather documents on behalf of the other bank.
  • Hence it can be seen as an integral offshoot of correspondent banking.
  • It can allow Indian banks gain wider access to foreign financial markets and serve international clients without having to be physically present abroad.
  • The SRVA is not a replacement to the existing system but an addition that uses freely convertible currencies and works as a complimentary system.
  • It is different from the existing systems as it does not require maintaining balances and position in major reserve currencies like U.S. dollar or pound sterling.

Components of SRVA

SRVA has three important components, viz, invoicing, exchange rate and settlement.

Invoicing
  • Invoicing means that the transactions for all exports and imports must be denominated and invoiced in INR.
Exchange rate
  • The exchange rate between the currencies of the trading partner countries need to be determined by the market.
Settlement
  • The final settlement of the exchange needs to take place in Indian National Rupee (INR).

Eligibility criteria for opening SRVAs

  • Banks from partner countries need to contact an authorised domestic dealer bank for opening a SRVA.
  • The domestic bank would then seek approval from RBI after providing details of the arrangement.
  • The domestic banks needs to ensure that the correspondent bank is not from a country mentioned in the updated Financial Action Task Force (FATF) Public Statement on High Risk & Non-Co-operative jurisdictions.
  • Domestic banks must also put forth financial parameters pertaining to the corresponding bank for perusal.
  • Authorised banks are allowed to open multiple SRV accounts for different banks from the same country.