BENGALURU: India’s central bank said on Tuesday foreign investors may invest the surplus balance in their so-called “vostro” accounts into central government securities.
Vostro accounts are typically held by a domestic bank on behalf of a foreign bank in which trading partners can hold rupee-denominated balances emerging from trade transactions.
“Persons resident outside India that maintain a special rupee vostro account (SRVA) for international trade settlement in Indian rupees … may invest their rupee surplus balance in the aforesaid account in central government securities,” a Reserve Bank of India notification said.
In 2022, the RBI had allowed overseas banks to open SRVAs to settle trade transactions in rupee as part of its efforts to boost the currency’s “internationalisation”.
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The holders of such accounts can invest in Indian government debt without registering as foreign portfolio investors, as overseas investors have to. However, the government slapped a limit of using only 30% of account balances to buy securities with residual maturity under one year, including treasury bills.
Reuters reported in May that the central bank had sought the government’s approval to remove this cap on foreign banks with vostro accounts to boost rupee-denominated investment and trade.
The RBI has approved 123 correspondent banks from 30 trading partner countries to open 156 SRVAs with 26 Indian banks topromote bilateral trade in local currencies, a junior trade minister told Parliament earlier this year.
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