Public sector lender UCO Bank has received the Reserve Bank of India’s (RBI’s) approval to open a special vostro account with Gazprombank of Russia for trade settlement in Indian rupees. The Kolkata-based lender is the first bank to receive regulator’s approval following the RBI’s decision to allow Indian banks to settle trade in Indian currency in July.
The Russian lender, which was set up by world’s largest gas producer and exporter Gazprom to provide banking services for gas industry enterprises has been operating since 1990. One of the top three banks in Russia, Gazprombank offers a whole range of banking and investment services to over 45,000 corporate and three million private clients.
In an interaction with Business Standard last week, UCO Bank MD & CEO, Soma Sankara Prasad, said they received many applications from banks from several countries for opening a special vostro account.
“They have come out with a circular regarding the special vostro account. It will work in cases where the balance of trade is even with the country. It is a good mechanism, which has been introduced by the RBI where a certain amount of trade can take place in rupee,” Prasad had said.
“We have received some applications for opening special vostro accounts from banks of other countries. We are looking at it,” he added.
Following the Russian invasion of Ukraine in February this year, India’s trade with Russia has been rising. During the April-June quarter, India’s imports from Russia were valued at $9.27 billion, up 369 per cent on year. Crude oil comprised almost two-thirds of imports from the nation. Other major imported items from the country included coal, soybean and sunflower crude oil, fertilisers, among others.
On July 11, the RBI issued a circular allowing trade settlements between India and other countries, including Sri Lanka and Russia, in rupee.
The circular said Indian importers undertaking imports through the INR trade mechanism will make payment in the same, which has to be credited into the special vostro account of the correspondent bank of the partner country, against the invoices for the supply of goods or services from the overseas seller/supplier. The RBI had said the exchange rate between the currencies of the two trading partner countries to be market determined.
Many banks in India are planning to open such special vostro accounts for settling trade transactions with other nations.
Indian exporters sending out goods and services through this mechanism should be paid in rupees from the balances in the designated special Vostro account of the correspondent bank of the partner country, the RBI notification said.
UCO Bank was chosen by the Union government in 2012 as the payment bank for oil imports from Iran, after the United State tightened the earlier rounds of sanctions. UCO Bank was chosen because of its limited global presence, which made it less vulnerable from repercussions over its involvement with then sanctioned Iran.
UCO reaped rich benefits from that deal. However, in recent times there has been no fresh inflows as India was no longer importing oil from Iran.
“Earlier till 2019, we were buying oil from Iran. So a huge amount of rupee balance was there in Iranian banks’ account with us. Since we have stopped buying oil from Iran from 2019, the rupee balance has gone down,” Prasad said, adding that UCO was looking at ways to augment the rupee balance.