July 20, 2022
RBI Allows International Trade Settlements in Indian Rupees
In its attempt to promote global trade, the Reserve Bank of India (“RBI”), vide its notification1, dated July 11, 2022, has come up with the International Trade Settlement in Indian Rupees mechanism (“ITSIR Mechanism”) for the purposes of invoicing, payment and settlement of exports / imports in Indian Rupees (“INR”).
What does ITSIR Mechanism entail?
Under the ITSIR Mechanism, the overseas bank of the foreign party, with whom Indian exporter / importer is dealing, would open a Special Rupee Vostro account2 (“Vostro Account”) with an Authorised Dealer bank (“AD bank”) in India, for which the AD bank would be required to procure RBI’s permission. Post receiving RBI’s blessings, the Indian exporter and importer would be able to raise and receive invoices in INR, respectively, with the option to use the market prevailing currency exchange rate for the transaction.
The settlement of trade under the ITSIR Mechanism would happen in the following manner:
Thus, the debit and credit of the Vostro Account would represent the trade occurring between India and the participating nation.
Features of ITSIR Mechanism
The introduction of the ITSIR Mechanism can prove to be more efficient and an easier way to trade with India. To stimulate the adoption of this mechanism, the RBI has not only shied away from saddling the parties with additional substantive and procedural responsibilities, but also has prescribed further relaxations. The prescribed features of the ITSIR Mechanism are as under:
The RBI, by notifying the ITSIR Mechanism, seems to be inching closer to making INR a globally acceptable currency for trade settlement as opposed to the US Dollar (“USD”). Under the present system, the settlement of international trade between India and any other country happens in USD, granting USD a global reserve currency status. However, this process exposes Indian traders to foreign exchange rate fluctuations and currency conversion expenses. The ITSIR Mechanism, which calls for trade settlement in INR, should, in the long run, make INR a globally acceptable currency and reduce India’s dependency on USD.
Further, in light of India’s persisting trade deficit, settling international trade in INR should also save USD outflows shoring up India’s foreign exchange reserves, which has considerably reduced in the last 2-3 weeks7. This step also hints towards facilitating trades with certain countries facing financial and economic hurdles.
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1 RBI notification RBI/2022-2023/90, available at
2 A Rupee Vostro account is a foreign bank’s account with an Indian bank in rupees in India. Also, the AD bank would need to ensure that the correspondent bank is not from a jurisdiction in the updated FATF Public Statement on High Risk & Non Co-operative Jurisdictions on which FATF has called for counter measures.
3 International Commercial Terms.
4 Paragraph C.26 on ‘Set-off of export receivables against import payables’ under RBI Master Direction – Export of Goods and Services, 2016, available at
5 Foreign Exchange Management (Guarantees) Regulations, 2000, Notification No. FEMA 8/2000-RB, available at
6 RBI Master Circular - Guarantees and Co-acceptances, 2015, available at
7 India's foreign exchange reserves stand at $580.252 billion as on July 8, 2022, as per the Reserve Bank of India's Weekly Statistical Supplement, dated July 15, 2022, available at
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