To create a demand for the Indian currency, how RBI’s Rupee Trade Settlement will function

New Delhi, July 15: On Monday, the Reserve Bank of India (RBI) asked banks to put in place additional arrangements for export and import transactions in Indian Rupees. The decision was taken in view of increasing interest of the global trading community in the domestic currency.

Banks would require prior approval from the Foreign Exchange Department of the Reserve Bank of INIdia before the mechanism is put in place.

"In order to promote growth of global trade with emphasis on exports from India and to support the increasing interest of global trading community in INR, it has been decided to put in place an additional arrangement for invoicing, payment, and settlement of exports / imports in INR," the RBI said.

All exports and imports under this arrangement may be denominated and invoiced in Rupee. The exchange rate between the currencies of the two trading partner countries may be market determined.

The settlement of trade transactions under this arrangement shall take place in INR in accordance with the procedure laid down, the RBI said.

The RBI sId that banks in India have been permitted to open Rupee Vostro Accounts. Accordingly, 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.

The norms broadly says that Indian importers undertaking imports through this mechanism shall make payment in Rupee and this shall be credited into the Special Vostro account of the correspondent bank of the partner country.

Indian exporters, undertaking exports of goods and services through this mechanism, shall be paid the export proceeds in INR from the balances in the designated Special Vostro account of the correspondent bank of the partner country, the RBI also said.

Indian exporters may receive advance payment against exports from overseas importers in Indian rupees through the above Rupee Payment Mechanism. Before allowing any such receipt of advance payment against exports, Indian Banks shall ensure that available funds in these accounts are first used towards payment obligations arising out of already executed export orders / export payments in the pipeline, the RBI also said.

In order to ensure that the advance is released only as per the instructions of the overseas importer, the Indian bank maintaining the Special Vostro account of its correspondent bank shall, apart from usual due diligence measures, verify the claim of the exporter with the advice received from the correspondent bank before releasing the advance, the RBI also said.