Blitz Bureau
NEW DELHI: The Reserve Bank of India (RBI) has executed a strategic masterstroke in its mission to internationalise the rupee, allowing foreign entities to invest their surplus rupee trade balances directly into India’s sovereign bond market.
The landmark decision permits non-residents to channel excess funds from their Special Rupee Vostro Accounts (SRVAs) into Central Government securities, including short-term Treasury Bills.
The move is a pivotal step in making the rupee a more attractive currency for settling international trade. SRVAs are accounts that foreign banks open with Indian banks to facilitate trade payments in rupees.
By allowing idle capital in these accounts to be deployed in secure, interest-bearing Government bonds, RBI is providing a powerful incentive for India’s trading partners to not only accept but also hold the Indian currency. This effectively transforms the rupee from a mere transactional medium into a viable reserve asset for foreign entities.
This policy enhancement comes hot on the heels of the central bank’s decision earlier in August to simplify the very process of opening these special accounts. RBI has empowered authorised dealer banks in India to open SRVAs for correspondent banks from partner countries without seeking prior approval from the central bank, a move designed to cut red tape and accelerate the adoption of the rupee settlement mechanism introduced in July 2022.
Market analysts have hailed the dual reforms as a game-changer for India’s financial markets. The decision is expected to create a fresh and consistent stream of foreign investment into the Government securities (G-Sec) market.
This new demand could significantly boost liquidity and help moderate bond yields, thereby lowering the borrowing costs for the Government. These investments are also exempt from the short-term maturity restrictions that typically apply to foreign portfolio investors (FPIs), offering greater flexibility to the holders of these vostro accounts.
While the strategic intent is clear, concrete data on the immediate impact of these recent policy changes is still awaited. Official figures on the growth in SRVA accounts or the quantum of funds flowing into G-secs since the announcement have not yet been compiled.
However, existing data provides a strong baseline. As of earlier this year, RBI had already approved the opening of 156 SRVAs for correspondent banks from 30 different countries, indicating a foundational interest in the rupee trade framework even before these powerful incentives were introduced.
The financial community will now be closely watching for the first sets of official data from RBI to quantify the success of this initiative. The policy is seen as particularly relevant for facilitating trade with nations like Russia, offering a robust mechanism to bypass complex geopolitical and currency-related challenges.
Ultimately, this initiative is more than just a regulatory tweak; it is a clear declaration of intent. By creating a self-sustaining ecosystem where foreign trade partners can settle transactions, hold funds, and invest surpluses entirely within the Indian financial system, RBI is laying a stronger foundation for the rupee’s ascent as a credible and competitive currency in global economic order.