Indian Reserve Bank permits 'vostro' accounts to fully allocate excess funds in government bonds
Foreign Investors Given Green Light to Invest Rupee Surplus Balances in Indian Government Securities
Foreign investors holding Special Rupee Vostro Accounts (SRVAs) can now invest their surplus rupee balances in Indian rupee-denominated central government securities (G-secs), as per a recent Reserve Bank of India (RBI) notification effective from August 2025. This marks a significant expansion of investment options for foreign investors in the Indian economy.
The RBI's move is part of a broader strategy to promote the internationalization of the Indian rupee and facilitate smoother foreign trade and investments in INR. In 2022, the RBI allowed overseas banks to open SRVAs to settle trade transactions in rupee, a move aimed at boosting the currency's "internationalisation".
The recent regulatory changes have eased the norms around SRVAs to boost rupee-based global trade. Category-I Authorised Dealer (AD) banks can now open SRVAs for foreign correspondent banks at their own discretion without the RBI’s previous approval, speeding up the account opening and settlement process. Indian AD banks can also open multiple SRVAs for different foreign banks, even multiple accounts from the same country.
SRVAs support cross-border trade settlements in INR by allowing foreign banks to hold rupee balances to pay Indian exporters and receive payments from Indian importers, reducing reliance on global reserve currencies and exchange rate risks. With the new allowance, foreign investors can invest their surplus funds beyond trade settlement, offering a conservative investment option in sovereign debt.
Holders of vostro accounts can invest in Indian government debt without registering as foreign portfolio investors. However, overseas investors are subject to a limit of using only 30% of account balances to buy securities with residual maturity under one year, including treasury bills.
The RBI has approved 123 correspondent banks from 30 trading partner countries to open 156 SRVAs with 26 Indian banks to promote bilateral trade in local currencies. As of the information given, the government has not yet removed the cap on foreign banks with vostro accounts to boost rupee-denominated investment and trade.
In summary, the key current restrictions and recent changes are:
| Aspect | Current Status / Change | |-----------------------------------------|------------------------------------------------| | Opening SRVAs | AD banks can open SRVAs without RBI approval | | Number of SRVAs per bank | Multiple SRVAs allowed per AD bank | | Purpose of SRVAs | Facilitate INR cross-border trade settlements | | Investment of surplus balances | Foreign investors (NRIs/foreign banks) can invest surplus rupee balances from SRVAs in central government securities, including T-bills | | Exchange rate determination | Market-determined based on trading partner currencies |
These updates reflect the RBI’s ongoing strategy to promote the rupee in international trade and provide more flexible mechanisms for foreign investors and banks transacting in INR.
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