With the Reserve Bank of India (RBI) enabling rupee surplus balances in ‘Special INR Vostro Accounts’ for investment in treasury bills (T-Bills) and G-Secs, the government has new avenues for its borrowings, say bankers.
The new mechanism for international trade settlement in rupee facilitates returns on the surplus balances in such accounts. This could encourage countries that have a current account surplus with India to open Special Rupee Vostro Accounts and use the surplus rupees to build rupee-denominated assets, say experts.
Although the concept has been around, surplus in such accounts were not permitted to be invested in G-Secs or T Bills for earning returns. This position has now been changed. In fact, the RBI has specifically said the balance in Special Vostro accounts can be used for payments for projects and investments; export/import advance flow management besides investment in T-Bills and G-Secs in terms of guidelines and prescribed limits, subject to the Foreign Exchange Management Act (FEMA) and similar statutory provisions.
It would be helpful to the government which is looking to borrow about ₹14.31-lakh crore this fiscal.
“The move indicates the RBI’s continued out-of-the-box thinking. This will provide greater flexibility for the trading community, provided they remain vigilant on market and interest rate risks on such instruments,” Siddhartha Sanyal, Chief Economist & Head of Research, Bandhan Bank, told BusinessLine. At the same time, this is another step towards greater internationalisation of rupee over the long run, he added.
Madan Sabnavis, Chief Economist, Bank of Baroda, said this will allow non-institutions to buy government paper. It will also energise government bond market and help the Centre’s borrowing programme at the margin.
Experts said the RBI has facilitated better use of rupee for transactions that were otherwise difficult to get through. Most believe the first country to be using this facility will be Russia. Moscow enjoys trade surplus and might open a rupee Vostro account and deploy that surplus rupee from trade into Indian assets.