Canara Bank and HDFC Bank have received approval from the Reserve Bank of India (RBI) to open a special Vostro account, which will be used for trading in rupees with Russia.
Vostro accounts are essential for correspondent banking and are usually held by a lender on behalf of their foreign counterpart.
RBI’s nod to Canara Bank and HDFC Bank comes nearly a week after Commerce Secretary Sunil Barthwal said that nine special Vostro accounts have been opened to facilitate overseas trade in the rupee.
“Nine accounts have been opened. One in Uco Bank, one in Sber, one in VTB and 6 with IndusInd Bank. These six are different Russian banks,” news agency PTI had quoted Barthwal as saying on November 15.
Sberbank and VTB Bank — the largest and second-largest banks of Russia, respectively — are the first foreign lenders to receive the approval after the RBI announced the guidelines on overseas trade in the rupee in July.
Another Russian bank Gazprom – which does not have its bank in India – has also opened this account with Kolkata-based UCO Bank.
The move to open the special Vostro account clears the deck for settlement of payments in rupee for trade between India and Russia, enabling cross-border trade in the Indian currency, which the RBI is keen to promote.
The RBI has allowed the special Vostro accounts to invest the surplus balance in Indian government securities to help popularise the new arrangement.
UCO Bank already has a Vostro account-based facility in Iran. Gazprombank, or GPB, is a privately-owned Russian lender and the third-largest bank in the country by assets.
Last month, the RBI and finance ministry asked the top management of banks and representatives of trade bodies to push export and import transactions in the rupee. They want banks in India to connect with their foreign counterparts for opening special rupee Vostro accounts to facilitate cross-border trade in the Indian currency rather than the popular mode of the US dollar.
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