What is a Vostro Account?

• It is an account that domestic banks hold for foreign banks in the former’s domestic currency, in this case, the rupee. 
• Domestic banks use it to provide international banking services to their clients who have global banking needs. 
• It is an integral offshoot of correspondent banking that entails a bank (or an intermediary) to facilitate wire transfers, conduct business transactions, accept deposits and gather documents on behalf of the other bank. 
• It helps domestic banks gain wider access to foreign financial markets and serve international clients without having to be physically present abroad.

About SRVA:

• The settlement of international trade through Indian Rupees (INR) is an additional arrangement to the existing system of settlement that uses freely convertible currencies and works as a complimentary system.
• Freely convertible currency is a currency which is permitted by the rules and regulations of the country concerned to be converted into major reserve currencies like the U.S. Dollar, Pound Sterling.
• This will reduce dependence on hard (freely convertible) currency.
• SRVA requires prior approval of RBI before opening, unlike Rupee Vostro account.
• How does SRVA arrangement function?
  • The framework entails three important components, namely, invoicing, exchange rate and settlement.
    • Invoicing entails that all exports and imports must be denominated and invoiced in INR. 
    • The exchange rate between the currencies of the trading partner countries would be market-determined.
    • The final settlement also takes place in Indian National Rupee (INR).
  • The authorised domestic dealer banks (those authorised to deal in foreign currencies) are required to open SRVA accounts for correspondent banks of the partner trading country.
  • Domestic importers are required to make payment (in INR) into the SRVA account of the correspondent bank against the invoices for supply of goods or services from the overseas seller/supplier.
  • Similarly, domestic exporters are to be paid the export proceeds (in INR) from the balances in the designated account of the correspondent bank of the partner country.
  • All reporting of cross-border transactions are to be done in accordance with the extant guidelines under the Foreign Exchange Management Act (FEMA), 1999.
• What are the eligibility criteria of banks?
  • Banks from partner countries are required to approach an authorised domestic dealer bank for opening the SRVA.
  • The domestic bank would then seek approval from the apex banking regulator, providing details of the arrangement.
  • It would be the responsibility of the domestic banks to ensure that the correspondent bank is not from a country mentioned in the updated Financial Action Task Force (FATF) Public Statement on High-Risk and Non-Co-operative jurisdictions.
  • Authorised banks can open multiple SRV accounts for different banks from the same country.
  • Further, balances in the account can be repatriated in freely convertible currency and/or the currency of the beneficiary partner country, depending on the underlying transaction, that is, for which the account was credited.