Settlement of India-Malaysia bilateral trade in Indian Rupee (INR)
No.CLE-HO/POL/MALAYSIA/2023
April 27, 2023
Members of the Council
Sub : Settlement of India-Malaysia bilateral trade in Indian Rupee (INR)
Dear Sir,
Kindly refer to our earlier circular of 21.04.23 regarding settlement of India-Malaysia bilateral trade in Indian Rupee. We have now received a communication from High Commission of India, Kuala Lumpur informing the following.
· From 1st April 2023, trade between Indian and Malaysia can be settled in Indian Rupee (INR) in addition to the current modes of settlement in other currencies. This follows the decision by the Reserve Bank of Indian in July 2022 to allow settlement of international trade in Indian Rupee.
· To operationalize this mechanism, India International Bank of Malaysia (IIBM), based in Kuala Lumpur, has opened a Special Rupee Vostro Account at Union Bank of India. This mechanism will allow the Indian and Malaysian traders to invoice the trade in Indian Rupee (INR) and subsequently settle the trade in Indian Rupee (INR). Denomination of trade in Indian Rupee will eliminate the currency conversion risks for the Indian traders who had to previously invoice their contracts in US Dollar or other currencies. With these savings on currency conversion spreads, it is expected that Indian traders will be able offer more competitive and attractive pricing of their goods and services to the Malaysian traders, thereby augmenting the trade growth.
· Indian traders are encouraged to explore the new mechanism and the benefits it offers.
· To know more details about the trade settlement in Indian Rupee, Indian traders may approach the Union Bank of India (Mr.Sanjeev Singla, Deputy General Manager, Union Bank of India, sanjeev.singla@unionbankofindia.bank
· Malaysian counterparts of the Indian traders may approach India International Bank of Malaysia for facilitation or contact IIBM (dyceo@iibm.com.my). A copy of the FAQ published by the bank is enclosed herewith.
Members may kindly note the above.
Thanks & regards,
R.Selvam
Executive Director
NO.CLE-HO/POL/CIRCULAR/2023
April 21, 2023
Members of the Council,
Sub : India and Malaysia bilateral trade in Indian Rupee (INR)
Dear Sir,
Kindly refer to our earlier circular dated 12.12.2022 regarding the circular issued by Reserve Bank of India and DGFT on International Trade settlement in Indian Rupees (copy given below). We have now received a communication from Department of Commerce stating the following.
As a follow up the decision of the Reserve Bank of India in July 2022 to allow settlement of International Trade in Indian Rupee (INR), India and Malaysia have now operationalized to settle their bilateral trade in Indian Rupee (INR). Press releases issued on 1 April 2023 by High Commission of India in Malaysia and the India International Bank of Malaysia (IIBM) are enclosed.
It may be noted that since this mechanism allows invoicing of trade in INR (as against USD denominated contracts), where Indian exporters/importers may avoid taking on USD-INR conversion risk. Therefore, business members may be advised to pass some of the savings to the Malaysian traders, thereby making their offerings more attractive to the Malaysian traders.
Members may kindly note the above.
Thanks & regards,
R.Selvam
Executive Director
COUNCIL FOR LEATHER EXPORTS
Encl: as above
No:CLE/POL-HO/RBI/2022
December 16, 2022
Members of the Council,
Sub : International Trade Settlement in Indian Rupees
Dear Sir,
We would like to invite your kind attention to our earlier circulars dated 15.7.22 & 21.11.22 on the above subject, wherein we informed the following.
· Reserve Bank of India, vide circular No. 10 dated July 11, 2022 (copy enclosed) has notified the mechanism on International Trade Settlement in Indian Rupees
· The DGFT has issued the Public Notice No. 35/2015-20 dated 09.11.2022 and Notification No. 43/2015-2020 dated 09.11.2022 (copy enclosed), stating that amendments are made in Foreign Trade Policy to permit exports benefits / fulfillment of Export Obligations for Invoicing, payment and settlement of exports and import in Indian Rupees, as per aforementioned RBI’s A.P. (DIR Series) Circular No. 10 dated 11th July, 2022
We would like to inform that a meeting was held recently under the Chairmanship of Secretary, Department of Financial Services, Government of India to discuss International Trade Settlement in Indian Rupees. The following issues were clarified in the meeting.
It was emphasized that the mechanism put in place by RBI is all-encompassing in terms of being applicable for every item, every bank, any every country. There were no restrictions on the range of type of products/goods/items allowed for import/export under the said mechanism. Further, this arrangement is country agnostic, i.e., it is uniformly applicable for banks of any partner country seeking to undertake trade with India in INR, and there is no restriction on this count.
b) Prior approval from RBI is required at the time of opening of Special Rupee Vostro Accounts (SRVAs) by Indian AD Banks for various foreign banks.
c) The mechanism in no way hinders the use of other channels of trade settlement in other convertible currencies etc, i.e, other modes of settlement will continue to be available alongside this mechanism. There are no restrictions which bind any trader from using other available channels/models while also using this mechanism.
d) Regarding foreign currency treatment (e.g. liability in pre-shipment finance), since the SRVA balance is a repatriable balance, foreign currency liability can be set off against the balance received by the exporters against the pre-shipment.
e) SRVAs, as the name implies are Special Vostro accounts, and all Regulations/ Guidelines/enablement which exist for normal Vostro accounts also apply to SRV Accounts. Therefore as regards funding of SRVAs, it follows the same principles as normal Vostro accounts, i.e., if INR balances are required to fund SRVAs for exports, then the same can be purchased using foreign currency as in normal Vostro accounts. As such, there is no restriction regarding prior imports/ sequencing of imports first so as to carry out any exports using SRVAs.
f) There is no regulatory requirement that traders need to have/open accounts with the banks settling the trade using SRVAs. Thus, banks may not insist on traders opening accounts with them for enabling use of SRVAs by them.
g) Currency conversion charges should not be mistaken as premium/commission. These are transaction charges which would also form a part of currency conversion costs otherwise also (i.e., in other channels of currency conversion). As far as bilateral currency conversion is concerned, market depth will only come with time as the currency pairs gain demand.
h) One major issue was regarding the percolation of know-how/information among bank staff regarding usage of this mechanism. It was urged that all banks may designate nodal officers, who could act as single points of contact and points of referral for any traders wishing to utilize this mechanism.
Members may please note the above and approach your bank for further details on International Trade Settlement in Indian Rupees.
An FAQ on International Trade Settlement in Indian Rupee posted in the RBI website is also enclosed herewith for reference.
Thanks & regards,
Selvam
Executive Director
COUNCIL FOR LEATHER EXPORTS
FAQ on trade settlement in Indian rupees
IIBM – Press Release- Trade Settlement in Indian Rupee (INR)
Notification 43 dt 09-11-22 Eng
PN 35 dt 09-11-22 Eng
Trade Settlement in Indian Rupee (INR) FAQ
HCI KL Press Release Trade Settlement in INR