**Executive Summary:**
This circular from the Reserve Bank of India introduces an additional arrangement for invoicing, payment, and settlement of international trade in Indian Rupees (INR) to promote global trade and exports from India. It outlines a framework under FEMA 1999, requiring AD banks to obtain prior approval from the RBI before implementing this mechanism. The instructions came into effect immediately on July 11, 2022.
**Key Points / Main Content:**
* **Framework for INR Trade Settlement:**
* Exports and imports can be denominated and invoiced in INR.
* Exchange rates will be market-determined.
* Settlement will occur in INR via a specified procedure.
* **Special Rupee Vostro Accounts:**
* AD banks in India can open Special Rupee Vostro Accounts for correspondent banks of partner countries.
* Indian importers will pay in INR, credited to the Vostro account of the partner country's bank.
* Indian exporters will receive INR payments from the designated Vostro account.
* **Documentation and Procedures:**
* Usual documentation and reporting requirements apply.
* Letter of Credit (LC) and trade documentation terms can be mutually decided between banks.
* Secure message exchange between banks of partner countries is encouraged.
* **Advance Payments and Set-offs:**
* Indian exporters can receive advance payments in INR, subject to specific conditions.
* Funds in Vostro accounts must first be used for existing export obligations.
* Set-off of export receivables against import payables is allowed under specified conditions.
* **Bank Guarantees:**
* Issuance of Bank Guarantees is permitted, adhering to FEMA Notification No. 8 and the Master Direction on Guarantees.
* **Use of Surplus Balance:**
* Surplus INR balances can be used for permissible capital and current account transactions.
* Permissible uses include: Payments for projects and investments, export/import advance flow management and investment in Government Treasury Bills and securities.
* **Reporting and Approval:**
* Cross-border transactions must be reported as per FEMA 1999 guidelines.
* Partner country banks can approach AD banks in India to open Special INR Vostro accounts, subject to RBI approval.
* AD banks must ensure correspondent banks are not from FATF high-risk jurisdictions.
**Impact Analysis:**
**Authorised Dealer (AD) Banks:**
* *Impact:* AD banks are responsible for implementing the new framework, opening and maintaining Special Rupee Vostro Accounts, and ensuring compliance with FEMA regulations.
* *Action Required:* Obtain prior approval from the RBI's Foreign Exchange Department before implementing the mechanism, establish necessary procedures for INR trade settlement, ensure compliance with FATF guidelines, and report cross-border transactions as required.
**Indian Importers and Exporters:**
* *Impact:* This framework provides an additional mechanism for settling international trade in INR, potentially reducing exchange rate risk and transaction costs.
* *Action Required:* Coordinate with their banks to utilize the Rupee Payment Mechanism for invoicing, payment, and settlement of trade transactions.
**Correspondent Banks of Partner Countries:**
* *Impact:* These banks can facilitate trade with India in INR through Special Rupee Vostro Accounts.
* *Action Required:* Approach AD banks in India to open Special INR Vostro accounts and adhere to the guidelines set by the RBI.
Key Entities Referenced
Reserve Bank of India: The central bank of India, responsible for regulating the banking system and foreign exchange management.
Indian Rupees: The official currency of India, denoted as INR.
Foreign Exchange Management Act, 1999: An Act of the Parliament of India to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.
Foreign Exchange Management Deposit Regulations, 2016: Regulations pertaining to the management of foreign exchange deposits as per the Foreign Exchange Management Act (FEMA).
Rupee Vostro Accounts: Special accounts opened by AD banks in India for correspondent banks of partner trading countries to facilitate trade transactions in INR.
Uniform Customs and Practice for Documentary Credits: A set of rules on documentary credits published by the International Chamber of Commerce (ICC).
Master Direction on Export of Goods and Services 2016: A comprehensive set of guidelines issued by the Reserve Bank of India (RBI) governing the export of goods and services from India.
Financial Action Task Force: An inter-governmental organization founded in 1989 on the initiative of the G7 to develop policies to combat money laundering.
भारतीय �रज़व� ब�क
RESERVE BANK OF INDIA
RBI/2022-2023/90
A.P. (DIR Series) Circular No.10 July 11, 2022
To
All Category-I Authorised Dealer Banks
Madam/Sir
International Trade Settlement in Indian Rupees (INR)
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. Before putting in place this mechanism, AD banks shall require prior
approval from the Foreign Exchange Department of Reserve Bank of India, Central Office
at Mumbai.
2. The broad framework for cross border trade transactions in INR under Foreign
Exchange Management Act, 1999 (FEMA) is as delineated below:
(a) Invoicing: All exports and imports under this arrangement may be denominated
and invoiced in Rupee (INR).
(b) Exchange Rate: Exchange rate between the currencies of the two trading partner
countries may be market determined.
(c) Settlement: The settlement of trade transactions under this arrangement shall
take place in INR in accordance with the procedure laid down in Para 3 of this
circular.
3. In terms of Regulation 7(1) of Foreign Exchange Management (Deposit) Regulations,
2016, AD 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 tradingcountry. In order to allow settlement of international trade transactions through this
arrangement, it has been decided that:
(a) 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.
(b) 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.
4. Documentation: The export / import undertaken and settled in this manner shall be
subject to usual documentation and reporting requirements. Letter of Credit (LC) and
other trade related documentation may be decided mutually between banks of the partner
trading countries under the overall framework of Uniform Customs and Practice for
Documentary Credits (UCPDC) and incoterms. Exchange of messages in safe, secure,
and efficient way may be agreed mutually between the banks of partner countries.
5. Advance against exports: 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 said permission would be in accordance with the conditions mentioned in para-C.2
on Receipt of advance against exports under Master Direction on Export of Goods and
Services 2016 (as amended from time to time). 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.6. Setting-off of export receivables: ‘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, subject to the conditions mentioned in para C.26
on Set-off of export receivables against import payables under Master Direction on Export
of Goods and Services 2016 (as amended from time to time).
7. Bank Guarantee: 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.
8. Use of Surplus Balance: 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:
(a) Payments for projects and investments.
(b) Export/Import advance flow management
(c) Investment in Government Treasury Bills, Government securities, etc. in terms
of extant guidelines and prescribed limits, subject to FEMA and similar statutory
provision.
9. Reporting Requirements: Reporting of cross- border transactions need to be done
in terms of the extant guidelines under FEMA 1999.
10. Approval Process: 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 the
Reserve Bank 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.
11. The above instructions shall come into force with immediate effect. AD banks may
bring the contents of this Circular to the notice of their constituents and customers
concerned.12. The directions contained in this circular have been issued under sections 10(4) and
11(1) of the Foreign Exchange Management Act (FEMA), 1999 (42 of 1999) and are
without prejudice to permissions / approvals, if any, required under any other law.
Yours faithfully,
(Vivek Srivastava)
Chief General Manager