India’s financial markets are unlikely to be disrupted if foreign entities using special vostro accounts unwind their investments in government securities, Reserve Bank of India (RBI) officials said on Thursday.
“About how much anyone has invested – that’s not something that we can say publicly. The rupee balances within the system – buying instruments within the system – should not have any significant liquidity impact,” RBI Deputy Governor T. Rabi Sankar said at a press conference after the central bank’s monetary policy statement.
In July 2022, the RBI had put in place an additional arrangement for the invoicing, payment, and settlement of exports and imports in rupees. The settlement of trade transactions with other countries would require Indian banks to open Special Rupee Vostro accounts of correspondent banks of the partner countries.
The RBI norms allow for surplus balances held in Special Vostro accounts to be invested in government securities.
With India having stepped up oil imports from Russia last year, market speculation has built up about the quantum of funds that may have been invested in government securities. Bank treasury executives estimate such investments in a range of $10-20 billion. India’s total imports from Russia in the previous financial year stood at $46 billion.
While clarifying that foreign investment in government securities could happen through only two avenues – the foreign portfolio investment route and the Special Vostro Account route – Sankar declined to provide more details.
“It’s not something about which we are unduly concerned,” RBI Governor Shaktikanta Das said when asked about the impact of potential outflows.
“Part of it is there which is quite manageable. It is not as if suddenly one day we will be under pressure to sort of take out that money and today, also as I mentioned, with $600 billion US dollar reserves, I think we are far better placed today to deal with any situation,” he said.
Sankar said that it was not accurate to surmise that the trade surplus built up by other countries with India was staying here as a large component was made up of oil.
“Oil, up to the global cap, can be paid through the normal channels. It is getting paid, most of it is getting paid. Some of it could be remaining as rupee balances in SRV accounts. So, don’t include the trade balance of $40 billion or something to the amount that must remain within the country,” he said.
In December 2022, western powers agreed to a $60-per-barrel cap on Russian seaborne oil.
Das said that India’s trade relation with any country was not a short-term one and therefore there was no reason to expect that a country would pull out investment.
