RBI Plans Easier Rules for Some Foreign Investors

India’s central bank, the Reserve Bank of India (RBI), is planning to make it easier for certain foreign account holders to invest in Indian government bonds. This is part of a strategy to support trade in Indian rupees instead of US dollars. (Source: Reuters).

What Is a Special Rupee Vostro Account?

A Special Rupee Vostro Account (SRVA) is a bank account that a foreign country’s bank holds with an Indian bank in rupees. These accounts are mainly used for trade—so countries like Russia can trade with India in rupees instead of dollars, especially when they face global sanctions.

What Is the Current Rule?

Right now, foreign investors can only invest up to 30% of their money in short-term Indian government bonds (like treasury bills). This rule limits how much they can invest in bonds that mature in less than a year.

What is the RBI Proposing?

The RBI wants to remove this 30% limit for SRVA holders. That means foreign countries using these accounts can invest any amount in short-term government bonds. This will give them more freedom and make rupee trade more attractive.

Why is This Important?

Countries like Russia earn rupees when they export to India.

Instead of just keeping that money idle, they can now invest it safely in Indian government bonds.

This could increase demand for Indian bonds and also strengthen the rupee in the long term.

It helps promote India’s goal of making the rupee a global trading currency.

RBI Facilitates Trade in Local Currencies Through SRVAs

Earlier this year, MoS informed Parliament that the Reserve Bank of India (RBI) had given the green light to 123 foreign correspondent banks across 30 key trading partner nations to establish 156 Special Rupee Vostro Accounts (SRVAs) in collaboration with 26 Indian banks. This initiative is aimed at strengthening bilateral trade by enabling transactions in local currencies. As of December 2024, the total funds held in all vostro accounts, including SRVAs, stood at ₹134.55 billion (approximately $1.60 billion).

What Happens Next?

If the Indian government agrees with this proposal, we may see more foreign investment coming into India through these special accounts. It will also help India reduce its dependence on the US dollar for international trade.