The Reserve Bank of India (RBI) has permitted overseas branches of banks to open rupee accounts for individuals residing outside India. According to a notification issued by RBI, individuals residing outside India will be able to settle transactions with other persons residing outside the country using balances in their rupee accounts. Experts believe that this move will significantly enhance the global usage of the Indian Rupee for cross-border transactions.

Where to open accounts?

Overseas branches of Authorised Dealer (AD) banks can now open rupee accounts. AD banks are those which are authorised by RBI to deal in foreign exchange transactions.

Who can do transactions?

Non-residents can now use balances in their rupee accounts to conduct transactions with other non-residents. This opens new avenues for rupee-based trade and settlements outside India.

Where can the surplus balance be utilised?

It can be invested in government securities. Balances in rupee accounts can now also be used for foreign investments, including foreign direct investment (FDI) in non-debt instruments, providing a new channel for rupee-based investments in India.

Exporters tend to gain

With new announcement, Indian exporters are now permitted to open accounts overseas to receive export proceeds and utilise these funds for paying for imports. This move enhances operational flexibility and reduces currency conversion costs. As the transactions will be settled in rupee, it will reduce the exchange rate risk for the Indian exporters and importers.

How will the exchange rate be determined?

The exchange rate between the currencies of two trading partner countries will be market determined. The exchange rate for most currencies are determined in the forex markets, typically against global currencies like the Dollar, Euro, Japanese Yen, etc. In the transition phase, when there is no market with direct exchange rates between two currencies (say Indian Rupee and Sri Lankan Rupee), the exchange rate between the currencies of two trading partner countries, each of which has markets against global currencies, would be derived as a cross currency rate.

The possible impact

The reform is designed to strengthen India’s trade and investment framework, reduce reliance on dominant foreign currencies like the US Dollar, and bolster the Indian Rupee in global standing.



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