The Reserve Bank of India (RBI) has approved the Indian Bank to hold special rupee vostro accounts of three banks from Sri Lanka, and is expected to activate them in about a week.
A vostro account in local currency would allow Sri Lanka to import from India without lowering into its declining dollar supply. The vostro accounts would also help Sri Lanka to utilise the rupee lines extended by India.
The Indian Bank opened its first overseas branch in Colombo in 1932. Till now, State of India (SBI) is the other domestic institution with which a Sri Lankan bank has opened a vostro account. The INR vostro account is considered as a tool to either overcome restrictions in the wake of US sanctions on Russian banks or continue cross-border trades amid a hard currency crisis.
The INR vostro facility is part of the special trade settlement mechanism finalised by the RBI in July 2022. The arrangement allows Indian importers to deposit rupees in vostro accounts that overseas banks open with banks in India and clearing of dues to Indian exporters from the surplus balances in the vostro accounts.
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