UCO Bank becomes first lender to get RBI approval for Rupee trading
Public sector lender UCO Bank has received approval from the Reserve Bank of India (RBI) to open a special vostro account with Gazprombank of Russia for settlement of trade in Indian rupees. The Kolkata-based lender is the first bank to receive regulatory approval following the RBI’s decision to allow Indian banks to settle in Indian currency in July.
The Russian lender, which was set up by Gazprom, the world’s largest gas producer and exporter, to provide banking services to companies in the gas industry, has been operating since 1990. One of Russia’s three main banks, Gazprombank offers a full range of banking and investment services to more than 45,000 businesses and three million private customers.
In an interaction with Trade standard Last week, Soma Sankara Prasad, CEO of UCO Bank, said that he received many requests from banks in several countries to open a special vostro account.
“They issued a circular regarding the vostro special account. This will work in cases where the trade balance is balanced with the country. It is a good mechanism, which was introduced by the RBI where a certain amount of trading can take place in rupees,” Prasad had said.
“We have received requests to open vostro special accounts from banks in other countries. We are thinking about it,” he added.
Following the Russian invasion of Ukraine in February this year, India’s trade with Russia has increased. In the April-June quarter, India’s imports from Russia were valued at $9.27 billion, up 369% year-on-year. Crude oil accounted for nearly two-thirds of imports from the country. Other major products imported from the country include coal, soybean and sunflower crude oil, fertilizers, among others.
On July 11, the RBI issued a circular allowing trade settlements between India and other countries, including Sri Lanka and Russia, in rupees.
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The circular states that Indian importers who undertake imports through the INR trade mechanism will make payment in the same, which is to be credited to the vostro special account of the correspondent bank in the partner country, against invoices for the supply of goods or services. of the seller/supplier abroad. The RBI had said that the exchange rate between the currencies of the two trading partner countries would be determined by the market.
Many banks in India are planning to open such special vostro accounts to settle business transactions with other countries.
Indian exporters who ship goods and services through this mechanism are expected to be paid in rupees from the balances of the special designated Vostro account of the partner country’s correspondent bank, the RBI notification says.
UCO Bank was chosen by the Union government in 2012 as the payment bank for oil imports from Iran, after the United States tightened the first rounds of sanctions. UCO Bank was chosen because of its limited global presence, which made it less vulnerable to repercussions from its involvement with then-sanctioned Iran.
UCO has reaped rich benefits from this agreement. However, lately, there have been no new inflows as India no longer imports oil from Iran.
“Before 2019, we were buying oil from Iran. So there was a huge amount of rupee balance in Iranian banks’ account at home. Since we stopped buying oil from Iran from 2019, the rupee balance went down,” Prasad said, adding that the UCO was looking for ways to increase the rupee balance.