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Russia can get some comfort over its mounting surplus rupee problem as it, along with 21 other countries, can now invest in dated Government Securities and Treasury Bills through a rupee account. The new system will be apart from options to invest through the Foreign Portfolio Investor (FPI) route and Special Rupee Vostro Account (SRVA).
There have been issues with the use of surplus rupee deposited which prompted India to work on some mechanism. In fact, Russian Foreign Minister Sergey Lavrov, who talked about the problem of a huge surplus of INR, had earlier given an indication of a new mechanism last month when he said that India will provide it with various options for investments. “Our Indian friends said they would propose promising areas they can be invested in. Right now our governments are talking about how to use and invest them to mutual benefit,” he said.
Now, the Reserve Bank of India has notified the amendment in Foreign Exchange Management (Debt Instruments) Regulations, 2019. Accordingly, a new provision has been added in the schedule of the regulation which says, “Persons resident outside India that maintain a rupee account in terms of regulation 7(1) of Foreign Exchange Management (Deposit) Regulations, 2016 may purchase or sell dated Government Securities/treasury bills, as per terms and conditions specified by the Reserve Bank.”
The notification also said the amount of consideration for the purchase of dated Government Securities/treasury bills by persons resident outside India shall be paid out of funds held in their rupee account. Also, the sale/maturity proceeds (net of taxes, as applicable) of instruments held by persons resident outside India who maintain a rupee account shall be credited to the said rupee account.
Sources told businessline that such a move will enable countries, accumulating surplus in INR, to be able to invest those rupee funds in government securities. Dated Government Securities means an instrument with a maturity period exceeding one year which carries a certain interest rate. Treasury Bills are also government securities but with a maturity period of less than one year which do not carry any interest. Such bills are issued at discount and payable at face value.
As of now, there are options available for putting surplus rupee generated through trade mechanism, but it is not known how much it has been used. In August this year, RBI Deputy Governor T Rabi Shankar, during the post-MPC meeting press conference, did not give any figure about how much money has been invested by Russia in G Sec. “It is allowed through the FPI route and through the special vostro account route. So, the actual investments will happen only through these two routes,” he had said.
International Trade Settlement in rupees, initiated in July last year, aims to promote the growth of global trade with emphasis on exports from India and to support the increasing interest of the global trading community in INR. This involves arrangements for invoicing, payments, and settlement of exports/imports for international trade in Indian Rupee. For this, there is a need to open SRVA. As of date, the RBI has permitted 20 Authorised Dealer (AD) banks in India to open SRVAs of partner banks from 22 countries namely Bangladesh, Belarus, Botswana, Fiji, Germany, Guyana, Israel, Kazakhstan, Kenya, Malaysia, Maldives, Mauritius, Myanmar, New Zealand, Oman, Russia, Seychelles, Singapore, Sri Lanka, Tanzania, Uganda, and UK.
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