India to iron out rupee trade problems amid stranded Russian assets

livemint.com:

NEW DELHI : India is working with Russia to sort out lingering problems with the rupee trade mechanism, including challenges with the exchange rate mechanism and fund repatriation, two government officials said. “Though issues with the special Rupee Vostro account system haven’t yet been resolved, both sides are working on the teething issues," one of the officials said. A Vostro account is a bank account, generally in a foreign currency, which is held by one bank on behalf of another.

By utilizing the respondent bank’s local banking infrastructure, it enables the bank to offer services to its clients in overseas markets. In July 2022, amid western sanctions on Russia, the Reserve Bank of India (RBI) announced this mechanism to allow local traders to settle imports and exports in rupees. Mint reported on 9 August that Russian funds worth about $10-12 billion are estimated to have been invested in Indian government treasury bills in the year ended 31 March 2023, after a surge in trade deficit led to higher surpluses in the vostro accounts.

India’s had a $43 billion trade deficit with Russia, which left Russian exporters with huge surpluses in their vostro accounts in India. RBI allows excess balance from such accounts to be invested in payments for projects and investments, treasury bills and government securities. Despite the challenges, Russia remains committed to the rupee-trade mechanism and is unlikely to unilaterally pull out of it, another senior government official said.