RBI Measures to settle International trades in rupee

Why in News ?

-RBI has announced that all the exports and imports can be denominated and invoiced in rupee.

-For making payment in rupees, banks will need to take prior approval from foreign exchange department of RBI.

-It will also address issues associated with invoicing, exchange rate and settlement.

-Exchange rate between 2 currencies can be determined by market.

How can trade transactions be settled?

-To settle down the trade transactions, banks need a “Special Rupee Vostro Accounts” of correspondent bank of partner trading country.

- For settlement of trade transactions with any country, the authorized dealer (AD) bank in India may open Special Rupee VOSTRO Accounts of correspondent bank/s of the partner trading country.

A Rupee Vostro account is a foreign bank’s account with an Indian bank in rupees in India.

 Foreign parties will be able to send and receive money from Indian exporters and importers via these Rupee Vostro accounts.

What is vostro account ?

 Vostro account is an account that domestic banks hold for foreign banks in the former's domestic currency, in this case, the rupee .

What is Nostro account

If an Indian bank maintains an account with an overseas bank in the US in dollars, such an account, maintained in a foreign currency at a foreign centre, would be called a Nostro account by the concerned Indian bank. 

The American bank concerned will refer to the same account as a Vostro Account.

Where are the uses of Vastro/Nostro accounts ?

A Nostro account is a bank account that a bank holds with a foreign bank in the domestic currency of the country where the funds are held.

 It is used to facilitate the settlement of international trade and foreign exchange transactions.

What about the surplus balance?

-Rupee surplus balance held with the banks can be utilized for permissible capital and current account transactions in line with mutual agreement.

-Balance in special Vostro accounts can be diverted to make payments for projects & investments, investment in government bonds and in export or import advance flow management

What will be the positive implications on the Indian Economy?

-It will boost India’s exports and currency:

-This move would boost the growth of global trade with an emphasis on exports from India (eg tea exports) and support the growing interest of the global business community in the domestic currency. 

-There are sanctions on Russia post the Ukraine war , This system will enable India –Russia trade without SWIFT  payments .

- It will help to reduce the depreciation of  rupee although to a ‘very limited extent’.…………………………..

Banks Board Bureau-

Banks Board Bureau is an autonomous ,advisory body of the Central Government.

Foundation-

This Banking Board bureau was set up  in 2016  .

Structure-(1 Chairmen , 3 Ex-Officio ,5 Expert members)

Banks Board Bureau comprises the Chairman, three ex-officio members i.e Secretary, Department of Public Enterprises, Secretary of the Department of Financial Services and Deputy Governor of the Reserve Bank of India, and five expert members, two of which are from the private sector.

Chairman can be any person of such experts who can be appointed by the Central Government.

It is not mandated that the Governor of RBI will be the chairman of the Bank Board Bureau (BBB).

Functions-

-It advises on how to improve the management of Public sector banks. 

-For developing and implementing appropriate methodologies for appointments, training  and termination of members of the Board in public sector banks, public sector insurance companies, and financial institutions.

-To recommend personnel for appointment as directors in government-owned insurance companies.

-The Chairmen of public sector banks are selected by the BBB.

HQ-

Banks Board Bureau headquarter is at the Central Office of Reserve Bank of India, Mumbai

 BBB was a part of the seven-point strategy of the Indradhanush Mission aimed at revamping the Public Sector Banks and reduce the NPA.