'Ruppees' Global Showdown
Friday, 15 July 2022, 16:32 IST
The RBI declared a preparation for domestic traders to resolve imports and exports in rupees. The central bank stated this would facilitate global trade growth with a focus on exports from India and support the increasing interest of the international trading community in the domestic currency. India’s trade with Russia stood at $13.1 billion in 2021-22. This arrives amid the rupee touching record lows against the dollar.
Before putting this in place, all Category-I Authorised Dealer (AD) banks shall require prior approval from the Foreign Exchange Department of Reserve Bank of India, Central Office at Mumbai. Presently, 60% of export/ import payments by Indian firms are denominated in the US dollar, about 5-10% in rupee, and the balance in other currencies, including the euro. Even in cases where an Indian exporter obtains the payments in rupee, the settlement at the sovereign level is done in dollars, with the exchange rate risk borne by the individual trader.
Cross Border trade transactions in INR is as below:
All the exports and imports under this agreement may be denominated and invoiced in INR. The conversion rate between the currencies of the two trading partner countries may be market determined.
The payment of trade transactions under this arrangement shall appear in INR under the procedure in Para 3 of this circular.
Regarding Regulation 7(1) of Foreign Exchange Management (Deposit) Regulations, 2016, AD banks in India have been permitted to open Rupee Vostro Accounts. Hence, for settlement of trade transactions with any country, AD bank in India may open Special Rupee Vostro Accounts of correspondent bank/s of the partner trading country.
To permit the settlement of international trade transactions through this understanding, it has been decided that:
Indian importers embarking on imports through this mechanism shall make payment in INR, 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 overseas seller /supplier:
Indian exporters embarking on exports of goods and services through this mechanism shall be paid the export proceeds in INR from the balances in the selected Special Vostro account of the correspondent bank of the associate country.
The export/import embarked and settled in this form shall be subject to documentation and reporting needs. Letter of Credit and further trade-related documentation may be determined mutually between banks of the partner trading countries under the framework of Uniform Customs and Practice for Documentary Credits (UCPDC) and incoterms. Swapping messages safely, securely, and efficiently may be mutually decided upon between partner countries' banks.
Indian exporters may accept advance payment against exports from overseas importers in Indian rupees through the above Rupee Payment Mechanism. Before letting any such receipt of advance payment against exports, Indian Banks shall confirm that available funds in these accounts are used for payment commitments arising from already executed export orders/export payments in the pipeline. Guarantee that the advance is released only as per the order of the overseas importer. The Indian bank holding the Special Vostro account of its correspondent bank shall, apart from usual due persistence measures, confirm the exporter's share with the advice obtained from the correspondent bank before releasing the advance.
'Set-off'of export receivables against import payables in consideration of the same overseas consumer and supplier with a facility to make/receive payment of the balance of export receivables/import payables, if any, through the Rupee Payment Mechanism may be permitted, subject to the conditions mentioned in para C.26 on Set-off of export receivables against import payables under Master Direction on Export of Goods and Services 2016.
Before putting this in place, all Category-I Authorised Dealer (AD) banks shall require prior approval from the Foreign Exchange Department of Reserve Bank of India, Central Office at Mumbai. Presently, 60% of export/ import payments by Indian firms are denominated in the US dollar, about 5-10% in rupee, and the balance in other currencies, including the euro. Even in cases where an Indian exporter obtains the payments in rupee, the settlement at the sovereign level is done in dollars, with the exchange rate risk borne by the individual trader.
Expertpraising the move said it would expedite trade between the two countries
Cross Border trade transactions in INR is as below:
All the exports and imports under this agreement may be denominated and invoiced in INR. The conversion rate between the currencies of the two trading partner countries may be market determined.
The payment of trade transactions under this arrangement shall appear in INR under the procedure in Para 3 of this circular.
Regarding Regulation 7(1) of Foreign Exchange Management (Deposit) Regulations, 2016, AD banks in India have been permitted to open Rupee Vostro Accounts. Hence, for settlement of trade transactions with any country, AD bank in India may open Special Rupee Vostro Accounts of correspondent bank/s of the partner trading country.
To permit the settlement of international trade transactions through this understanding, it has been decided that:
Indian importers embarking on imports through this mechanism shall make payment in INR, 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 overseas seller /supplier:
Indian exporters embarking on exports of goods and services through this mechanism shall be paid the export proceeds in INR from the balances in the selected Special Vostro account of the correspondent bank of the associate country.
The export/import embarked and settled in this form shall be subject to documentation and reporting needs. Letter of Credit and further trade-related documentation may be determined mutually between banks of the partner trading countries under the framework of Uniform Customs and Practice for Documentary Credits (UCPDC) and incoterms. Swapping messages safely, securely, and efficiently may be mutually decided upon between partner countries' banks.
Indian exporters may accept advance payment against exports from overseas importers in Indian rupees through the above Rupee Payment Mechanism. Before letting any such receipt of advance payment against exports, Indian Banks shall confirm that available funds in these accounts are used for payment commitments arising from already executed export orders/export payments in the pipeline. Guarantee that the advance is released only as per the order of the overseas importer. The Indian bank holding the Special Vostro account of its correspondent bank shall, apart from usual due persistence measures, confirm the exporter's share with the advice obtained from the correspondent bank before releasing the advance.
'Set-off'of export receivables against import payables in consideration of the same overseas consumer and supplier with a facility to make/receive payment of the balance of export receivables/import payables, if any, through the Rupee Payment Mechanism may be permitted, subject to the conditions mentioned in para C.26 on Set-off of export receivables against import payables under Master Direction on Export of Goods and Services 2016.
