With the Reserve Bank of India (RBI) enabling rupee surplus balances in ‘Special INR Vostro Accounts’ for investment in treasury bills (TBills) and GSecs, the government gets a new avenue for its borrowings, say bankers, reported Business Line.
The new rules for international trade settlement in the rupee facilitates returns on the surplus balances in such accounts. This could encourage countries that have a current account surplus with India to open Special Rupee Vostro Accounts and use the surplus to build rupee denominated assets, say experts.
Although the concept has been around, surplus in such accounts were not permitted to be invested in GSecs or TBills for earning returns. This position has now been changed.
In fact, the RBI has specifically said the balance in Special Vostro accounts can be used for payments for projects and investments; export/import advance flow management besides investment in TBills and GSecs in terms of guidelines and prescribed limits, subject to the Foreign Exchange Management Act (FEMA) an similar statutory provisions, the report said.
It would come in handy for the government looking to borrow about ₹14.31lakh crore this fiscal.
“The move indicates the RBI’s continued out-of-the-box thinking. This will provide greater flexibility to the trading community, provided they remain vigilant on market and interest rate risks on such instruments,” Siddhartha Sanyal, Chief Economist & Head of Research, Bandhan Bank told the paper.
“This will allow noninstitutions to buy government paper. It will also energise the government bond market and help the Centre’s borrowing programme at the margin,” said Madan Sabnavis, Chief Economist, Bank of Baroda.
Experts said the RBI has facilitated better use of rupee for transactions that were otherwise difficult to get through. Most believe the first country to be using this facility will be Russia.