Finance Ministry has convened a meeting of top chief executives of public sector banks and six private banks on December 5 to give push to rupee trade settlement in cross border trade. 

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The meeting, which will be chaired by Financial Services Secretary Vivek Joshi, will also see representatives from Reserve Bank of India, Commerce Ministry and External Affairs Ministry besides Indian Banks Association (IBA), sources close to the development said.

For overseas trade

It maybe recalled that Reserve Bank of India (RBI) had in July this year come out with detailed guidelines on cross border trade transactions in rupee. Since then about nine special vostro accounts have been opened with two Indian banks to facilitate overseas trade in the rupee. 

The opening of special vostro accounts paves the way for settlement of payments in rupee for cross border trade between India and overseas countries including Russia. RBI has to popularise the new arrangement even allowed the special vostro accounts to invest the surplus balance in Indian government securities. 

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Payment in INR

“Indian importers undertaking imports through the mechanism shall make payment in INR, which shall be credited into the special vostro account of the correspondent bank of the partner country, against the invoices for the supply of goods or services from the overseas seller/supplier”, RBI had earlier said.

Initially Indian banks were apprehensive over the implementation of the RBI formulated international rupee trade settlement mechanism. However, the Finance Ministry had on September 7 convened an inter-ministerial meeting to allay their concerns on the implementation of the new mechanism. 

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Public sector banks were worried that the international trade settlement mechanism in rupee could lead to trigger of penalties from the office of foreign assets control (OFAC) of the US Department of Treasury as most Indian banks have accounts and existing banking relationships in the US. OFAC administers and enforces Economic and trade sanctions based on US foreign policy and national security goals.