International Trade Settlement in Indian Rupees (INR)

In order to promote growth of global trade with emphasis on exports from India and to
support the increasing interest of global trading community in INR, it has been decided to
put in place an additional arrangement for invoicing, payment, and settlement of exports
/ imports in INR. Before putting in place this mechanism, AD banks shall require prior
approval from the Foreign Exchange Department of Reserve Bank of India, Central Office
at Mumbai.

2. The broad framework for cross border trade transactions in INR under Foreign
   Exchange Management Act, 1999 (FEMA) is as delineated below:
   (a) Invoicing: All exports and imports under this arrangement may be denominated
   and invoiced in Rupee (INR).
   (b) Exchange Rate: Exchange rate between the currencies of the two trading partner
   countries may be market determined.
   (c) Settlement: The settlement of trade transactions under this arrangement shall
   take place in INR in accordance with the procedure laid down in Para 3 of this
   circular.
3. In terms of Regulation 7(1) of Foreign Exchange Management (Deposit) Regulations,
   2016, AD banks in India have been permitted to open Rupee Vostro Accounts.
   Accordingly, for settlement of trade transactions with any country, AD bank in India may
   open Special Rupee Vostro Accounts of correspondent bank/s of the partner trading
   country. In order to allow settlement of international trade transactions through this
   arrangement, it has been decided that:
   (a) Indian importers undertaking imports through this 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.
   (b) Indian exporters, undertaking exports of goods and services through this
   mechanism, shall be paid the export proceeds in INR from the balances in the
   designated Special Vostro account of the correspondent bank of the partner
   country.
4. Documentation: The export / import undertaken and settled in this manner shall be
   subject to usual documentation and reporting requirements. Letter of Credit (LC) and
   other trade related documentation may be decided mutually between banks of the partner
   trading countries under the overall framework of Uniform Customs and Practice for
   Documentary Credits (UCPDC) and incoterms. Exchange of messages in safe, secure,
   and efficient way may be agreed mutually between the banks of partner countries.
5. Advance against exports: Indian exporters may receive advance payment against
   exports from overseas importers in Indian rupees through the above Rupee Payment
   Mechanism. Before allowing any such receipt of advance payment against exports, Indian
   Banks shall ensure that available funds in these accounts are first used towards payment
   obligations arising out of already executed export orders / export payments in the pipeline.
   The said permission would be in accordance with the conditions mentioned in para-C.2
   on Receipt of advance against exports under Master Direction on Export of Goods and
   Services 2016 (as amended from time to time). In order to ensure that the advance is
   released only as per the instructions of the overseas importer, the Indian bank maintaining
   the Special Vostro account of its correspondent bank shall, apart from usual due diligence
   measures, verify the claim of the exporter with the advice received from the
   correspondent bank before releasing the advance.
6. Setting-off of export receivables: ‘Set-off’ of export receivables against import
   payables in respect of the same overseas buyer and supplier with facility to make/receive
   payment of the balance of export receivables/import payables, if any, through the Rupee
   Payment Mechanism may be allowed, subject to the conditions mentioned in para C.26
   on Set-off of export receivables against import payables under Master Direction on Export
   of Goods and Services 2016 (as amended from time to time).
7. Bank Guarantee: Issue of Bank Guarantee for trade transactions, undertaken through
   this arrangement, is permitted subject to adherence to provisions of FEMA Notification
   No. 8, as amended from time to time and the provisions of Master Direction on
   Guarantees & Co-acceptances.
8. Use of Surplus Balance: The Rupee surplus balance held may be used for
   permissible capital and current account transactions in accordance with mutual
   agreement. The balance in Special Vostro Accounts can be used for:
   (a) Payments for projects and investments.
   (b) Export/Import advance flow management
   (c) Investment in Government Treasury Bills, Government securities, etc. in terms
   of extant guidelines and prescribed limits, subject to FEMA and similar statutory
   provision.
9. Reporting Requirements: Reporting of cross- border transactions need to be done
   in terms of the extant guidelines under FEMA 1999.
10. Approval Process: The bank of a partner country may approach an AD bank in India
    for opening of Special INR VOSTRO account. The AD bank will seek approval from the
    Reserve Bank with details of the arrangement. AD bank maintaining the special Vostro
    Account shall ensure that the correspondent bank is not from a country or jurisdiction in
    the updated FATF Public Statement on High Risk & Non Co-operative Jurisdictions on
    which FATF has called for counter measures.
11. The above instructions shall come into force with immediate effect. AD banks may
    bring the contents of this Circular to the notice of their constituents and customers
    concerned.
12. The directions contained in this circular have been issued under sections 10(4) and
    11(1) of the Foreign Exchange Management Act (FEMA), 1999 (42 of 1999) and are
    without prejudice to permissions / approvals, if any, required under any other law.