RBI nod for foreign trade rupees to be invested in government securities

The Reserve Bank of India (RBI) today allowed non-residents holding Special Rupee Vostro Accounts (SRVA) for trade settlements in Indian rupees (INR) to invest their excess rupee balances in central government securities, including treasury bills.

In a circular issued on Tuesday, the RBI stated that persons resident outside India who maintain a Special Rupee Vostro Account (SRVA) for international trade settlement in Indian Rupees may invest their rupee surplus balance in the aforesaid account in Central Government Securities (including Treasury Bills).

The move will help create more opportunities for deploying rupee surpluses generated through international trade settlements.

“Persons resident outside India that maintain a Special Rupee Vostro Account for international trade settlement in Indian rupees… may invest their rupee surplus balance in central government securities (including Treasury Bills),” the RBI said in its circular dated 12 August 2025.

By allowing surplus rupee balances in SRVAs to be invested in government securities, the RBI is offering a risk-free and liquid investment avenue for trade partners.

Arsh Mogre, Economist, PL Capital, says, "Mechanically, this converts inert trade floats into demand for GOI paper, broadening the investor base beyond FPIs and banks; the channel is already meaningful in reach—156 SRVAs opened by 123 banks from 30 countries across 26 Indian banks, so even modest deployment rates add incremental, recurrent bids at auction and in the secondary market, supporting depth and turnover.”

As context, India is midway through index‑driven foreign participation—23 FAR‑eligible bonds (~$330 bn notional) entered JPMorgan’s GBI‑EM from Jun‑2024 toward a 10% weight, with expectations of ~$20–25 bn passive inflows; foreigners still own <2% of outstanding GOI debt (projected ~5%), and holdings of unlimited‑route bonds crossed ₹3 trillion by March 2025.

So, SRVA flows are additive rather than substitutive, especially at the short end, where 91‑day T‑bills have cleared ~5.39% in recent auctions versus a 10‑yr benchmark near 6.29–6.41% this summer.

“On rupee internationalisation, SRVAs raise the carry/utility of holding INR: balances used for invoicing can now earn sovereign returns, tightening the trade–finance link for INR at a time when the currency’s global FX turnover share remains small (~1.7% in BIS 2022),” said Mogre.

"Net‑net: the policy should deepen demand (more participants, steadier bid, improved term‑premium transmission) and, by making INR balances yield‑bearing, marginally strengthen the case to hold/settle in rupees—an essential precondition for a higher global INR share over time," added Mogre.

In simple terms, foreign banks that hold rupees for trade can now invest those funds in Indian government bonds, rather than letting them sit idle. This is attracting more buyers from around the world, adding to foreign investments already gained through global bond index inclusion.

Even minor investments from these accounts can increase demand for both short- and long-term bonds, strengthening India’s bond market. It also makes holding rupees more appealing by allowing them to earn interest, which could gradually help the currency play a larger role in global trade over time.