Why in NEWS
The Reserve Bank of India (RBI) has allowed non-residents holding Special Rupee Vostro Accounts (SRVAs) to invest surplus balances in government securities. Additionally, RBI has removed the prior approval requirement for banks to open SRVAs. These measures aim to promote rupee-based trade and accelerate the internationalisation of the Indian Rupee.
Key Terms / Concepts
| Term | Definition |
|---|---|
| Special Rupee Vostro Accounts (SRVAs) | Accounts opened by foreign entities with Indian banks to facilitate international trade settlements in Indian Rupees. |
| Internationalisation of Rupee | Promoting the use of INR in cross-border trade, investment, and financial transactions without mandatory conversion to foreign currencies like USD. |
| Government Securities (G-secs) | Debt instruments issued by the Government of India to borrow money from investors. |
| Local Currency Settlement (LCS) | Mechanism to settle international trade directly in local currencies without converting into dominant foreign currencies. |
| Masala Bonds | Rupee-denominated bonds issued in foreign markets to attract global investors. |
News Details
| Aspect | Details |
|---|---|
| SRVAs Background | Introduced in 2022, SRVAs allow exporters and importers to invoice and settle trade directly in rupees. |
| RBI Measures | 1) Non-resident SRVA holders can invest surplus balances in G-secs and Treasury Bills. 2) Authorized dealer banks can now open SRVAs independently without RBI approval. |
| Significance | Encourages internationalisation of the INR, reduces dependence on USD, and allows productive deployment of surplus rupee funds. |
Benefits of Internationalisation of Rupee
| Benefit | Explanation |
|---|---|
| Reduces Vulnerability | Less reliance on foreign currencies shields India from global crises and currency shortages. |
| Lowers Hedging Costs | Settling trade in INR protects businesses from currency volatility and boosts competitiveness. |
| Eases Forex Reserve Pressure | Reduces the need to hold large USD/EUR reserves, freeing resources for other priorities. |
| Enables Deficit Financing | Global acceptance of INR allows India to raise funds abroad through rupee-denominated bonds. |
| Strengthens Markets | Increases foreign demand for INR assets, deepening bond and equity markets and attracting long-term capital. |
Challenges in Internationalisation of Rupee
| Challenge | Explanation |
|---|---|
| Limited Global Acceptance | INR is not fully convertible on the capital account and absent in major settlement platforms like CLS. |
| INR Liquidity Constraints | Lack of readily available INR abroad hampers trade settlements. |
| Regulatory Complexities | Inconsistent KYC norms across RBI, SEBI, and global custodians deter foreign participation. |
| Trade Invoicing in USD | Most of India’s external trade is still invoiced and settled in USD or other convertible currencies. |
| Payment Infrastructure Limitations | Limited integration of UPI, RTGS, and RuPay with foreign payment systems restricts cross-border INR transactions. |
| Geopolitical and Currency Dominance | USD dominance poses structural limitations; countries may hesitate to adopt INR. |
Major Steps Taken for Internationalisation
| Step | Details |
|---|---|
| SRVAs Operationalisation | 22 countries involved for rupee-based trade settlements. |
| MoUs with Central Banks | UAE, Indonesia, Maldives, etc., for bilateral trade in local currencies. |
| UPI Global Expansion | Operational in UAE, Singapore, Bhutan, Nepal, Sri Lanka, France, Mauritius as of July 2025. |
| Strategic Action Plan 2024–25 | Includes allowing non-residents to open INR accounts abroad, enabling Indian banks to lend in INR, and facilitating FDI and portfolio investments through SNRR and SRVAs. |
| Currency Swap Agreements | Agreements with over 20 countries for liquidity support and local currency trade settlements. |
| Masala Bonds | Issuance of rupee-denominated bonds to attract global investors. |
RBI Recommendations for Internationalisation
| Recommendation | Details |
|---|---|
| Boost Cross-Border Settlement Mechanisms | Develop standardized Local Currency Settlement frameworks supported by sufficient INR liquidity. |
| Strengthen Financial Market Infrastructure | Build a global 24×5 INR forex market and enable interbank trades via overseas branches. |
| Facilitate G-sec Inclusion in Indices | Inclusion in indices like JPMorgan to attract stable passive flows. |
| Simplify KYC and Onboarding | Harmonize KYC norms across RBI, SEBI, and global custodians; accept digital signatures and scanned documents with SWIFT confirmation. |
| Include INR in IMF SDR Basket | Position INR as a global reserve currency by aiming for inclusion in the IMF Special Drawing Rights basket. |
In a nutshell
SRVAs and related RBI measures aim to make the Indian Rupee a globally recognized currency. This reduces dependence on USD, improves trade efficiency, and encourages foreign investment in rupee-denominated assets while requiring infrastructure and regulatory reforms to overcome adoption challenges.
Prelims Questions
- Which of the following is true about Special Rupee Vostro Accounts (SRVAs)?
A) Only Indian residents can open SRVAs
B) SRVAs facilitate trade settlements in USD
C) Non-residents can now invest surplus SRVA balances in government securities
D) SRVAs were introduced in 2010 - Internationalisation of the Rupee aims to:
A) Increase dependence on the US dollar
B) Promote INR usage in cross-border trade and investments
C) Replace INR with USD in domestic markets
D) Prevent issuance of rupee-denominated bonds - Which of the following steps promotes INR internationalisation?
A) Currency Swap Agreements
B) Restricting SRVAs
C) Increasing KYC complexities for FPIs
D) Limiting UPI to India
Mains Questions
- Discuss the significance, challenges, and steps taken by India to internationalise the rupee. 10 Marks
- Examine how Special Rupee Vostro Accounts can contribute to strengthening India’s financial and trade position globally. 10 Marks
Prelims Answers & Explanation
| Q.No | Answer | Explanation |
|---|---|---|
| 1 | C | Non-resident SRVA holders are now allowed to invest surplus balances in government securities; SRVAs facilitate trade in INR. |
| 2 | B | The objective of internationalisation is to promote INR usage in global trade and financial transactions. |
| 3 | A | Currency Swap Agreements with other countries facilitate INR-based settlements and promote internationalisation |
