Context: 

Recently government officials informed that 20 Russian banks have opened Special Rupee Vostro Accounts (SRVA) with partner banks in India. 

About SRVA Arrangement: 

• Vostro comes from the Latin word for “yours,” as in “your money that is on deposit at our bank.”

• • A Vostro account is an account that a domestic bank holds for a foreign bank in the domestic bank’s currency, i.e., 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 transfer, conduct business transactions, accept deposits and gather documents on behalf of the other bank. 

Benefits:

• Facilitate settlement of payments in rupee for trade between India and Russia
• Enables cross-border trade in the Indian currency
• It helps domestic banks gain wider access to foreign financial markets and serve international clients without having to be physically present abroad. 
• The SRVA is an additional arrangement to the existing system that uses freely convertible currencies and works as a complimentary system. 

How does it 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 authorised domestic dealer banks (those authorised 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 is the eligibility criteria of banks? 

• Banks from partner countries are required to approach an authorised 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 & Non­Co­operative jurisdictions. 
• Domestic banks must also put forth for perusal, financial parameters pertaining to the corresponding bank.

News Source: The Hindu