The Reserve Bank of India (“RBI”) vide A.P. (DIR Series) Circular No.10 dated July 11, 2022, has allowed international trade settlements to be undertaken in Indian currency (“Notification”). The Notification establishes a mechanism for invoicing, payment and settlement of exports and imports in Indian Rupee (“INR”). Certain key aspects of the Notification are as follows:

1. Authorized Dealer Banks (“AD Banks”) in India may, with the approval of the RBI, open Special Rupee Vostro Accounts of the trading partner’s correspondent bank to enable trading in INR.

2. The Indian importer shall make payment in INR which shall be transferred to the Vostro Account.

3. The Indian exporter shall be paid in INR out of the funds existing in the Vostro Account.

4. The export receivables may be set-off against the import payables inter-se the same buyer and supplier through this mechanism.

5. Bank guarantee can also be issued for trades undertaken by way of this mechanism subject to the applicable guidelines under the Foreign Exchange Management Act (“FEMA”).

6. The surplus balance in the Vostro Accounts, if any, can be utilized for:

a. Payments for projects and investments;

b. Export/ import advance flow management; and

c. Investment in Government treasury bills, Government securities, etc. 

7. Additionally, the Notification also mandates compliance with documentations and reporting requirements for cross-border transactions as per the applicable FEMA guidelines.

8. The arrangement cannot be availed for trade with any country listed under the Foreign Action Task Force Public Statement on “High Risk & Non-Co-operative” Jurisdictions.

Please find a copy of the Notification, here.

Contributed by Sakshi Sharma (Associate). 

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