Before putting in place this mechanism, Authorised Dealer (AD) banks shall require prior approval from the Foreign Exchange Department of Reserve Bank of India, Central Office at Mumbai.
All exports and imports under this arrangement may be denominated and invoiced in INR. Exchange rate between the currencies of the two trading partner countries may be market determined.
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.
In order to allow settlement of international trade transactions through this arrangement, it has been decided that Indian importers undertaking imports through this mechanism shall make payment in INR which shall be credited into the Special Vostro account of the correspondent bank of the partner country, against the invoices for the supply of goods or services from the overseas seller/supplier.
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 export / import undertaken and settled in this manner shall be subject to usual documentation and reporting requirements.
Indian exporters may receive advance payment against exports from overseas importers in Indian rupees through the above Rupee Payment Mechanism.
'Set-off' of export receivables against import payables in respect of the same overseas buyer and supplier with facility to make/receive payment of the balance of export receivables/import payables, if any, through the Rupee Payment Mechanism may be allowed.
Issue of Bank Guarantee for trade transactions, undertaken through this arrangement, is permitted subject to adherence to provisions of FEMA Notification No. 8, as amended from time to time and the provisions of Master Direction on Guarantees & Co-acceptances.
The Rupee surplus balance held may be used for permissible capital and current account transactions in accordance with mutual agreement. The balance in Special Vostro Accounts can be used for Payments for projects and investments; Export/Import advance flow management; Investment in Government Treasury Bills, Government securities, etc. in terms of extant guidelines and prescribed limits, subject to FEMA and similar statutory provision.
For approval, the bank of a partner country may approach an AD bank in India for opening of Special INR VOSTRO account. The AD bank will seek approval from RBI with details of the arrangement. AD bank maintaining the special Vostro Account shall ensure that the correspondent bank is not from a country or jurisdiction in the updated FATF Public Statement on High Risk & Non Co-operative Jurisdictions on which FATF has called for counter measures.
The above instructions shall come into force with immediate effect, RBI said.
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