Re vostro accounts: Banks move RBI, flag grey areas
Banks have also sought clarification on the transfer of government securities acquired from the surplus in these accounts, people familiar with the development told ET. The other concerns include issues related to invoicing in rupees, the exchange rate for the conversion of volatile currencies, banking-related financial messages and communications with the correspondent bank. Vostro accounts are held by banks on behalf of other banks, acting as their custodians.
India has stepped up its purchase of cheaper Russian crude amid international opposition. Settling this trade in rupees can allow New Delhi to continue these purchases.
The vostro account issue had figured in discussions at a meeting last week on the RBI’s proposed mechanism for international trade settlement in rupees.
Banks Reluctant to Open Accounts
The meeting was attended by senior officials from the finance ministry, the external affairs ministry and the RBI.
Under the arrangement announced by the RBI on July 11, an authorised bank in India can open special rupee vostro accounts of correspondent banks of any partner trading country.
Both private and public sector banks have been reluctant to open and operate these vostro accounts, worried about getting hit by the US-led sanctions on Russia.
“We expect RBI to give some clarity so that there is a regulatory comfort before we implement this mechanism,” said a bank executive.
The RBI didn’t respond to queries.
Another banker said the RBI notification is silent on how the funds will be repatriated and lenders feel that this makes them vulnerable to US sanctions in the case of some countries.
“Keeping it as G-secs here is of no use to someone like the Russians. Ultimately, they are in urgent need of cash which can be used,” said the second banker. “Unless there is a way to repatriate the money, all the technicalities are useless.”
Many Russian banks were banned from SWIFT, the global system for transferring money across borders, after the country invaded Ukraine. Russian banks had suggested that Indian banks could consider joining the Russian SPFS system, a messaging and settlement system similar to SWIFT. Indian banks have been reluctant as that could invite US sanctions. Most of India’s banks hold substantial foreign currency-denominated portfolios and any sanction could adversely affect them.
Under the rules, any surplus in these rupee accounts can be invested in treasury bills and government securities. Banks want to understand how these securities will be transferred to the buyers.