What is a Special Rupee Vostro Account (SRVA)?

About SRVA

• The settlement of international trade through Indian Rupees (INR) is an additional arrangement to the existing system of settlement that uses freely convertible currencies and works as a complimentary system.
  • Freely convertible currency is a currency which is permitted by the rules and regulations of the country concerned to be converted into major reserve currencies like the U.S. Dollar, Pound Sterling.
• This will reduce dependence on hard (freely convertible) currency.
• SRVA requires prior approval of RBI before opening, unlike Rupee Vostro account.
• How does SRVA arrangement function?
  • The framework entails three important components, namely, invoicing, exchange rate, and settlement.
• Invoicing entails that all exports and imports must be denominated and invoiced in INR.
• The exchange rate between the currencies of the trading partner countries would be market-determined.
• The final settlement also takes place in Indian National Rupee (INR).
  • The authorised domestic dealer banks (those authorised to deal in foreign currencies) are required to open SRVA accounts for correspondent banks of the partner trading country.
  • Domestic importers are required to make payment(in INR)into the SRVA account of the correspondent bank against the invoices for supply of goods or services from the overseas seller/supplier.
  • Similarly, domestic exporters are to be paid the export proceeds (in INR) from the balances in the designated account of the correspondent bank of the partner country.
  • As for availing an advance against exports, it would be the responsibility of the domestic bank to accord foremost priority to ensuring that the available funds are used to meet existing payment obligations, that is, from the already executed export orders or export payments in the pipeline.
  • All reporting of cross-border transactions are to be done in accordance with the extant guidelines under the Foreign Exchange Management Act (FEMA), 1999.
• What are the eligibility criteria of banks?
  • Banks from partner countries are required to approach an authorised domestic dealer bank for opening the SRVA.
  • The domestic bank would then seek approval from the apex banking regulator, providing details of the arrangement.
  • It would be the responsibility of the domestic banks to ensure that the correspondent bank is not from a country mentioned in the updated Financial Action Task Force (FATF) Public Statement on High-Risk and Non-Co-operative jurisdictions.
  • Domestic banks must also put forth, for perusal, financial parameters pertaining to the corresponding bank.
  • Authorised banks can open multiple SRV accounts for different banks from the same country.
  • Further, 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, that is, for which the account was credited.

Q1: What is the Financial Action Task Force (FATF)?

FATF is an inter-governmental policy-making and standard-setting body dedicated to combating money laundering and terrorist financing. Its objective is to establish international standards, and to develop and promote policies, both at national and international levels, to combat money laundering and the financing of terrorism. It was established in 1989 during the G7 Summit in Paris to develop policies against money laundering. In 2001 its mandate expanded to include terrorism financing.

Source: Payment mechanism for traders importing pulses from Myanmar simplified: Govt