HDFC Bank, Canara Bank get RBI approval for rupee trade with Russia

HDFC Bank and Canara Bank have got approval from the Reserve Bank of India (RBI) to open a special Vostro account for trade in rupees and both the approvals are for trade with Russia, banking industry sources said.

So far five Indian banks — UCO Bank, Union Bank, and IndusInd Bank being the other three — have received regulatory clearance for such trade. This apart, two Russian banks — Sber Bank and VTB — have the RBI’s approval. Both have branches in India.

According to sources, three banks have opened accounts so far though no deal has been done through this mechanism. The move is aimed at popularising trade in the domestic currency.

Kolkata-based UCO Bank was the first Indian bank to receive the RBI’s approval to open a special Vostro account with Russia’s Gazprombank, which was set up by the world’s largest gas producer and exporter, Gazprom.

IndusInd Bank has tied up with six Russian banks while the remaining four Indian banks have done deals with one Russian lender each.

HDFC Bank’s counterpart in Russia is MTS Bank, the fintech unit of Russia’s largest mobile operator, MTS. On July 11, the RBI had issued a circular allowing trade settlement between India and other countries in rupees. At the current exchange rate, the Russian ruble equals Rs 1.35.

The circular said Indian importers plying their trade through the rupee mechanism would pay in the Indian currency, which has to 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.

The RBI had said the exchange rate was to be market-determined.

Indian exporters sending out goods and services through this mechanism should be paid in rupees from the balance in the designated special Vostro accounts of the correspondent bank of the partner country, the RBI notification said.

After the Russia-Ukraine war broke out in late February, resulting in the former facing sanctions from European countries and the United States, the need to develop an alternative currency for trade arose.

According to an International Monetary Fund (IMF) blog, central banks are no longer holding the greenback in their reserves to the earlier extent.

The dollar’s share in global foreign-exchange reserves fell below 59 per cent in the final quarter of last year, extending a two-decade decline, according to the IMF’s Currency Composition of Official Foreign Exchange Reserves data.