Skip to main content

International Trade Settlement in Indian Rupees (INR)

Reserve Bank of India (RBI) has put in place an additional arrangement for invoicing, payment, and settlement of exports / imports in Indian Rupee (INR). 

What does new arrangement entail?

The broad framework for cross border trade transactions in Indian Rupee (INR) under Foreign Exchange Management Act, 1999 (FEMA) is as below –

  • 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.
  • The settlement of trade transactions under this arrangement shall take place in INR.

How are the transactions processed under new arrangement?

For settlement of trade transactions with any country, AD bank in India may open Special Rupee Vostro Accounts of correspondent banks of the partner trading country. 

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.

Which documents are required under new arrangement?

The export / import undertaken and settled under Rupee Payment Mechanism 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. 

What are guidelines on advance payments, set-off and bank guarantees under new arrangement?

  • Indian exporters may receive advance payment against exports from overseas importers in INR through the 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. 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 verify the claim of the exporter with the advice received from the correspondent bank before releasing the advance.
  • ‘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.

How can surplus balance be utilised under new arrangement?

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 –

  1. Payments for projects and investments.
  2. Export / Import advance flow management
  3. Investment in Government Treasury Bills, Government securities, etc.

What is approval process under new arrangement?

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 need to 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.

What are the guidelines on opening additional special current account?

AD Category-I banks maintaining Special Rupee Vostro Account are permitted to open an additional special current account for its exporter / importer constituent for settlement of their export / import transactions.


References

Reserve Bank of India. (2022, July 11). 'International Trade Settlement in Indian Rupees (INR)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12358&Mode=0

Reserve Bank of India. (2023, November 17). 'International Trade Settlement in Indian Rupees (INR) – Opening of additional Current Account for exports proceeds'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12568&Mode=0

Reserve Bank of India. (2024, June 11). 'International Trade Settlement in Indian Rupees (INR) – Opening of additional Current Account for settlement of trade transactions'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12693&Mode=0


Follow at - Telegram   Instagram   LinkedIn   Twitter

Comments

Popular Posts

Highlights of RBI Annual Report 2023-24 – Chapter 7 to 12

Reserve Bank of India (RBI) has published its annual report for the financial year 2023-24. In a series of articles, we will go through the highlights of the report. This is the fifth and last article in the series.  Chapter 7 – Public Debt Management Ways And Means Advances (WMA) limit for the Government of India (GoI) for H1:2023-24 (April to September 2023) was fixed at ₹1,50,000 crore and for H2:2023-24 (October 2023 to March 2024) was fixed at ₹50,000 crore. RBI issued an ultra-long security of 50-year tenor aggregating ₹30,000 crore to cater to the growing needs of long-term institutional players. Issuance of Sovereign Green Bonds (SGrBs) for an aggregate amount of ₹20,000 crore included maiden issuance of 30-year (₹10,000 crore) SGrB in addition to 5-year (₹5,000 crore) and 10-year (₹5,000 crore) SGrBs. A new 3-year benchmark security was introduced as part of government market borrowing programme during H1:2023-24.  The basket of products offered through the ‘Retail ...

Lending against Gold and Silver collateral

Reserve Bank of India (RBI) has issued directions on lending against the collateral of gold and silver. To whom are the directions applicable? The directions are applicable to the following regulated entities (REs) – Commercial Banks (including Small Finance Banks, Local Area Banks and Regional Rural Banks, but excluding Payments Banks). Primary (Urban) Co-operative Banks (UCBs) & Rural Co-operative Banks (RCBs), i.e., State Co-operative Banks (StCBs) and Central Co-operative Banks (CCBs). Non-Banking Financial Companies (NBFCs), including Housing Finance Companies (HFCs). Which loans are covered under the directions? The directions shall apply to all loans offered by an RE for the purpose of consumption or income generation (including farm credit) where eligible gold or silver collateral is accepted as a collateral security. What is eligible collateral? Eligible collateral means the collateral of jewellery, ornaments or coins made of gold or silver. A lender shall not grant any ad...

Prior approvals from or intimations / reporting to RBI by NBFC-BL

Non-Banking Financial Companies (NBFCs) are required to obtain prior approvals from Reserve Bank of India (RBI) or intimate / report to RBI various events. This article lists out some of such important events where prior approvals or intimations / reporting is required for Base Layer NBFCs (NBFC-BL). Events requiring prior approval from RBI  Master Direction – Reserve Bank of India (Non-Banking Financial Company – Scale Based Regulation) Directions, 2023 dated October 19, 2023 Para 30 – NBFCs shall prepare its balance sheet and profit and loss account as on March 31 every year. Whenever an NBFC intends to extend the date of its balance sheet as per provisions of the Companies Act, 2013, it shall take prior approval of RBI before approaching the Registrar of Companies for this purpose. Even in cases where RBI and the Registrar of Companies grant extension of time, the NBFC shall furnish to RBI a proforma balance sheet (unaudited) as on March 31 of the year and the statutory returns ...

RBI’s Monetary Policy (June 06, 2025): In A Nutshell

The bi-monthly monetary policy of Reserve Bank of India (RBI) was announced on June 06, 2025. Here are some of the highlights of the monetary policy announcement. Rates   Change Rate Policy repo rate Reduced by 0.50% 5.50% Standing deposit facility (SDF) rate 5.25% Marginal standing facility (MSF) rate 5.75% Bank rate 5.75% Monetary policy stance Monetary policy stance was changed from ‘accommodative’ to ‘neutral’. Domestic Economy  The Indian economy presents a picture of strength, stability, and opportunity. The 5x3x3 matrix of fundamentals provides the necessary core strength to cushion the Indian economy against global spillovers and propel it to grow at a faster pace.  First, strength comes from the strong balance sheets of the 5 major sectors - corporates, banks, households, government, and the external sector.  Second, there is stability on all 3 fronts – price, financial, and political – providing policy and economic certainty.  Third, the Indian ec...

What is KYC?

Be it opening a new bank account, applying for a new credit card, registering for new e-wallet, or any other account or facility involving financial matters, the application process is incomplete until KYC is done.  What is KYC? KYC or Know Your Customer is a process of customer identification and verification while opening an account or undertaking a financial transaction. Why is KYC process needed? To prevent money laundering To combat financing of terrorism What is verified under KYC? The banks / financial institutions collect the relevant documents from the customers to verify the following – Proof of identity Proof of address Which documents can be collected for KYC? As per RBI’s Master Direction - Know Your Customer (KYC) Direction, 2016 (Updated as on May 10, 2021), “Officially Valid Document” (OVD) means – Passport Driving licence Proof of possession of Aadhaar number Voter's Identity Card issued by the Election Commission of India Job card issued by NREGA duly signed by an...