To facilitate transactions between India and Malaysia in the Indian rupee, Union Bank of India (UBI) announced on Saturday the opening of its ‘Special Rupee Vostro’ account in Malaysia. UBI’s announcement came on a day the ministry of external affairs said the two countries can now settle trade in the rupee as well, in addition to the current modes of settlement in other currencies, including the Malaysian Ringgit.
What is VOSTRO Account?
- Vostro is an Italian word meaning ‘yours’. Hence, Vostro account means – “Your account with us”
- Vostro accounts are generally held by a foreign bank in our country (with a domestic bank). It is generally maintained in Indian Rupee .
- Eg – HSBC account with SBI in India.
With this, Union Bank of India (UBI) has become the first Indian bank to operationalise a Vostro account in Malaysia. The account has been operationalised through the India International Bank of Malaysia (IIBM) – UBI’s corresponding bank in that country.
1. In July 2022, the Reserve Bank of India (RBI) decided to allow the settlement of India’s international trade in rupee. Accordingly, authorised Indian banks must open and maintain Special Rupee Vostro accounts of the partner trading country’s banks.
2. These accounts keep the foreign bank’s holdings in the Indian counterpart, in rupees. When an Indian trader wants to make a payment to a foreign trader in rupees, the amount will be credited to this Vostro account.
3. Similarly, in the reverse scenario, the amount to be paid to an Indian trader is deducted from the Vostro account, and credited to the person’s regular account.
4. According to PTI, as on March 15, Indian banks, including HDFC Bank and UCO Bank, had opened as many as 30 such accounts in 18 countries. The partner international banks include Sberbank and VTB, the largest and second-largest, respectively, in Russia.
5. The total trade between India and Malaysia reached $19.4 billion in FY 2021-22, as per Union Bank. Also, at present, 1 Malaysian Ringgit is equivalent to approx. ₹19 in India.
- Malaysia is the 13th largest trading partner for India while India stands amongst the 10 largest trading partners globally. Furthermore, Malaysia has emerged as the third largest trading partner for India from the ASEAN region and India is the largest trading partner for Malaysia among the countries of the Southeast Asian region.
- Bilateral trade reached US$ 17 billion in FY 2021-22
- This includes exports worth approx. US$ 12 billion and imports worth approx. US$ 7 billion.
- Malaysia ranks as the 27th largest investor in India with an FDI inflow of US$ 1,161 million from April 2000-September 2022.
- Bilateral trade reached US$ 13.86 billion in April-November 2022. This includes exports worth US$ 4.9 billion and imports worth US$ 8.9 billion from April-November 2022.
- Surrounded by busy sea lines of communication such as the Strait of Malacca and the South China Sea, Malaysia is also a key pillar of India’s Act East policy and critical to India’s maritime connectivity strategies.