About Settlement in Indian Rupees (SRVA) |Ias Banenge

Context:

India has simplified the payment mechanism for traders importing pulses from Myanmar, requiring them to use the Rupees/Kyat direct payment system through the Special Rupees Vostro Account (SRVA) through the Punjab National Bank.

Relevance:

GS III: Indian Economy

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Dimensions of the Article:

1. About Settlement in Indian Rupees (SRVA)
2. Eligibility Criteria for Banks

About Settlement in Indian Rupees (SRVA)

Overview

• SRVA is an additional arrangement to the existing system of settlement using freely convertible currencies and operates as a complementary system.
  • Freely Convertible Currency: Currency that can be converted into major reserve currencies like the U.S. Dollar, Pound Sterling, in accordance with the country’s regulations.

Objective

• Reduces dependence on hard (freely convertible) currency.

Regulatory Approval

• SRVA requires prior approval from the Reserve Bank of India (RBI) before opening, unlike the Rupee Vostro account.

Functioning of SRVA

• Components
  • Invoicing: All exports and imports must be denominated and invoiced in Indian Rupees (INR).
  • Exchange Rate: The exchange rate between the trading partner countries’ currencies is market-determined.
  • Settlement: The final settlement occurs in INR.
• Operational Process
  • Authorized domestic dealer banks (authorized to deal in foreign currencies) must open SRVA accounts for correspondent banks of the partner trading country.
  • Domestic importers make payments (in INR) into the SRVA account of the correspondent bank for invoices from overseas sellers/suppliers.
  • Domestic exporters receive export proceeds (in INR) from the balances in the designated account of the correspondent bank of the partner country.
  • For availing advances against exports, domestic banks must prioritize ensuring that available funds are used to meet existing payment obligations, i.e., from already executed export orders or pending export payments.
  • All cross-border transactions reporting must comply with the guidelines under the Foreign Exchange Management Act (FEMA), 1999.

Eligibility Criteria for Banks

• Banks from partner countries must approach an authorized domestic dealer bank to open the SRVA.
• The domestic bank then seeks approval from the apex banking regulator, providing details of the arrangement.
• Domestic banks must ensure the correspondent bank is not from a country listed in the updated Financial Action Task Force (FATF) Public Statement on High-Risk and Non-Co-operative jurisdictions.
• Domestic banks must present financial parameters related to the corresponding bank for review.
• Authorized banks can open multiple SRV accounts for different banks from the same country.
• Balances in the account can be repatriated in freely convertible currency and/or the currency of the beneficiary partner country, depending on the underlying transaction for which the account was credited.

-Source: The Economic Times

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