• 20 Russian banks have opened Special Rupee Vostro Accounts (SRVA) with partner banks in India.
• A Vostro account is an account that domestic banks hold for foreign banks in the former’s domestic currency, in this case, the rupee.
  • Domestic banks use it to provide international banking services to their clients who have global banking needs.
• The SRVA is an additional arrangement to the existing system that uses freely convertible currencies and works as a complimentary system.
• Banking services such as wire transfers, conducting business transactions, accepting deposits and gathering documents on behalf of the other bank.
• Domestic banks gain wider access to foreign financial markets and serve international clients without having to be physically present abroad.
• Three important components of SRVA are:

1. Invoicing: All exports and imports must be denominated and invoiced in INR.
2. Exchange Rate: The exchange rate between the currencies of the trading partner countries would be market-determined.
3. Settlement: The final settlement also takes place in Indian National Rupee (INR).

Eligibility Criteria of Banks

• Banks from partner countries would approach an authorised domestic dealer bank that would then seek approval from the apex banking regulator for opening an SRVA.
• The domestic banks would be responsible to ensure that the correspondent bank is not from a country mentioned in the updated Financial Action Task Force (FATF) Public Statement on High Risk & Non-Co-operative jurisdictions.
• Authorised banks can open multiple SRV accounts for different banks from the same country.

Benefits

• The Economic Survey (2022-23) pointed out that SRVA would reduce the net demand for foreign exchange, for the settlement of current account-related trade flows.
• Reduce the need for holding foreign exchange reserves and dependence on foreign currencies, making the country less vulnerable to external shocks.
• Indian exporters could get advance payments in INR from overseas clients and in the long-term promote INR as an international currency once the rupee settlement mechanism gains acceptance.

Vostro vs Nostro Account

• Nostro and Vostro are Latin words that translate to ‘ours’ and ‘yours’ respectively.
• While a Nostro Account is said to be a record of deposits held by a bank with a foreign bank in the currency of the country holding the funds, a Vostro Account is one that is again managed by a correspondent bank on another bank’s behalf.
• The difference between the two is that it is described from the point of view of the two different banks i.e., depositor and holder.