Russian funds in Indian vostro accounts fall to $3.5 bn: What is their use?

Russian funds in Indian rupee vostro accounts have halved to $3.5 billion in 12-15 months. Vostro accounts, introduced in July 2022 in India, facilitate rupee trade

Over the past 12-15 months, the funds held by Russian companies in rupee vostro accounts in India have nearly halved to approximately $3-3.5 billion, Livemint reported on Thursday. Initially totalling around $8 billion, these funds were used for expenditures on Indian securities, machinery, and defence products.

During the last financial year and the current one, a considerable portion of these funds has been allocated to investments and payments, the report added.

What is a rupee vostro account?

A vostro account, which translates from Latin to “your account,” is an account held by one bank on behalf of another bank, typically from a different country. These accounts were authorised by the Reserve Bank of India (RBI) in July 2022 due to limited investment options in India-Russia trade and difficulties with repatriating funds after Western sanctions were imposed on Russia following its February 2022 invasion of Ukraine. The move was aimed at promoting rupee trade in view of the increasing interest of the global trading community in the domestic currency.
 

 

In simpler terms, if a Russian company asks an Indian bank to manage its funds, the Indian bank treats this as a vostro account for the Russian company. Initially, India had allowed nine banks to open vostro accounts for the settlement of foreign exchanges and foreign trade.

As of July 2023, the RBI has permitted 20 banks operating in the country to open 92 special rupee vostro accounts to boost bilateral trade in local currency. The partner foreign banks belong to 22 countries, including Bangladesh, Belarus, and Israel, among others.

How do vostro accounts operate?

These accounts hold a foreign bank’s funds in Indian rupees. When an Indian trader needs to pay a foreign trader in rupees, the payment goes into this vostro account. Conversely, when a foreign trader needs to pay an Indian trader, the amount is taken from the vostro account and added to the Indian trader’s regular account.