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Newsflash On RBI Circular On International Trade Settlement In Indian Rupees (INR) – International Trade & Investment

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In terms of existing provision of the Foreign Exchange
Management Act, 1999 (‘FEMA’), Indian
Rupee is not a freely convertible currency.

The Reserve Bank of India (RBI) vide Circular No. 10 dated July
11, 2022, has permitted international trade invoices and payments
and settlements of exports/import to be made in Indian Rupees (INR)
for encouraging trade as under:

  • Indian importers shall now make payments in Indian Rupees, to
    be credited to the Special Indian Rupee Vostro Account of the
    correspondent bank of the partner country.

  • In case of exports, Indian exporters shall be paid the export
    proceeds in INR from the balances in the partner country’s
    designated Vostro account.

The Circular has laid down the mechanism cross border trade
transactions in INR, which is described as under:

  1. The export/import undertaken and settled shall be subject to
    usual documentation and reporting requirements. Letter of Credit
    (LC) and other trade related documentation to 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.

  1. Indian exporters can also receive advance payment against
    exports from overseas importers in Indian rupees. Before allowing
    any receipt of such advance payment, Indian Banks shall ensure that
    available funds in accounts are first used towards payment
    obligations arising out of already executed export orders / export
    payments in the pipeline.

  1. 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 verify
    the claim of the exporter with the advice received from the
    correspondent bank before releasing the advance.

  1. Facility of ‘Set-off’ of export receivables against
    import payables in respect of the same overseas buyer and supplier
    allowed subject to specified conditions.

  1. Issue of Bank Guarantee for trade transactions, undertaken
    through such arrangement is permitted subject to adherence to
    provisions under FEMA read with the updated Notifications.

  1. Rupee surplus balance held may be used for permissible capital
    and current account transactions.

  1. Reporting of cross-border transactions required to be done in
    terms of the guidelines under FEMA.

  1. Bank of a partner country can approach an Authorized Dealers
    (‘AD’) bank in India for opening of
    Special INR VOSTRO account. AD bank shall seek approval from the
    RBI 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 Financial Action
    Task Force(‘FATF’), Public Statement on
    High Risk and Non-Co-operative Jurisdictions on which FATF has
    called for counter measures.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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