Foreign trade in rupee no great shakes despite surge in vostro accounts

Teething troubles in exchange rate mechanism, repatriation cited as roadblocks, even as Russia, African and Gulf nations and a few others evince interest in rupee-denominated trade

Even as several private and public sector banks have opened special rupee vostro accounts to facilitate overseas trade in the rupee, the mechanism has started off only on a brief scale, a senior government official said.

“This is a new initiative, and there are teething troubles relating to the exchange rate mechanism and the repatriation of money. So, it has not fully taken off. But there are isolated instances of some banks that have started it,” said Director General of Foreign Trade (DGFT) Santosh Kumar Sarangi, adding that there are exporters in Jaipur and other places that have started the rupee trade.

“We are constantly in touch with the banks, the RBI and our exporters to ensure that it gradually takes off," Sarangi said.

The Department of Commerce is in regular touch with banks, the Department of Financial Services and exporters on the issue. “Over and above this, all the banks have been told to identify a nodal officer, who will sort out issues pertaining to special vostro accounts…accordingly all major banks have listed nodal officers and the list has been shared with all the export promotion councils,” he added.

As of now, 20 banks have opened special rupee vostro accounts. Several banks from Russia have approached authorised dealer (AD) banks in India such as HDFC Bank, UCO Bank, Axis Bank, IndusIND Bank and Yes Bank to open such accounts. The Reserve Bank of India has already approved opening of special vostro rupee accounts.

In July last year, the RBI had spelt out a mechanism to settle international trade transactions in the rupee to promote the growth of global trade and to help internationalise India’s currency. It was also seen as a way to continue India’s trade with Russia, after the West imposed economic sanctions on Moscow earlier this year, in an attempt to isolate it from global trade.

Certain African nations facing foreign exchange problems and issues with dollar and euro mobilisation are showing interest in the rupee trade mechanism. Bangladesh, Sri Lanka and Mauritius are also taking interest in rupee vostro accounts. These accounts have also been opened by some developed countries like Israel and Germany. Government officials said more countries are likely to adopt this mechanism.

“We have had discussions with some African and Gulf countries. They are also interested,” commerce secretary Sunil Barthwal said, adding that opening of several vostro accounts shows that banks are seeing strong potential in rupee trade.