Special Rupee Vostro Account (SRVA)

18.04.2024

Special Rupee Vostro Account (SRVA)

 Why in the news?                  

India has simplified the payment mechanism for traders importing pulses from Myanmar, requiring them to use the Rupee/Kyat direct payment system through the Special Rupee Vostro Account (SRVA).

What is a Vostro Account?

• It is an account that domestic banks hold for foreign banks in the former’s domestic currency, in this case, the rupee.
• Domestic banks use it to provide international banking services to their clients who have global banking needs.
• It is an integral offshoot of correspondent banking that entails a bank (or an intermediary) to facilitate wire transfers, conduct business transactions, accept deposits and gather documents on behalf of the other bank.
• It helps domestic banks gain wider access to foreign financial markets and serve international clients without having to be physically present abroad.

About SRVA:

• The settlement of international trade through Indian Rupees (INR) is an additional arrangement to the existing system of settlement that uses freely convertible currencies and works as a complimentary system.
• Freely convertible currency is a currency which is permitted by the rules and regulations of the country concerned to be converted into major reserve currencies like the U.S. Dollar, Pound Sterling.
• This will reduce dependence on hard (freely convertible) currency.
• SRVA requires prior approval of RBI before opening, unlike Rupee Vostro account.

How does SRVA arrangement function?

• The framework entails three important components, namely, invoicing, exchange rate and settlement.

○Invoicing  entails that all exports and imports must be denominated and invoiced in INR.

○The exchange rate between the currencies of the trading partner countries would be market-determined.

○The final settlement also takes place in Indian National Rupee (INR).

• The authorized domestic dealer banks (those authorized to deal in foreign currencies) are required to open SRVA accounts for correspondent banks of the partner trading country.
• Domestic importers are required to make payment (in INR) into the SRVA account of the correspondent bank against the invoices for supply of goods or services from the overseas seller/supplier.
• Similarly, domestic exporters are to be paid the export proceeds (in INR) from the balances in the designated account of the correspondent bank of the partner country.
• All reporting of cross-border transactions are to be done in accordance with the extant guidelines under the Foreign Exchange Management Act (FEMA), 1999.

What are the eligibility criteria of banks?

• Banks from partner countries are required to approach an authorized domestic dealer bank for opening the SRVA.
• The domestic bank would then seek approval from the apex banking regulator, providing details of the arrangement.
• It would be the responsibility of the domestic banks 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 and Non-Co-operative jurisdictions.
• Authorized banks can open multiple SRV accounts for different banks from the same country.
• Further, balances in the account can be repatriated in freely convertible currency and/or the currency of the beneficiary partner country, depending on the underlying transaction, that is, for which the account was credited.

                                           Source: The times of India