India and Malaysia can settle their trade in Indian rupee through an operational mechanism facilitated by Union Bank of India.

The state-owned bank has become the first in the country to open a Special Rupee Vostro Account through its corresponding bank in Malaysia i.e. India International Bank of Malaysia. The rupee trade is in addition to the current modes of settlement in other currencies.

"This mechanism will allow the Indian and Malaysian traders to invoice the trade in Indian rupee and therefore achieve better pricing for goods and services traded. This mechanism is expected to also benefit the traders on both sides as they can directly trade in Indian rupee and therefore save on currency conversion spreads," the state-run bank said.

Union Bank's move is in line with the RBI's direction in July last year to allow the settlement of international trade in Indian rupee.

In a statement, Union Bank said "this measure is aimed at facilitating the growth of global trade and to support the interests of the global trading community in Indian Rupee."

"This measure is aimed at facilitating the growth of global trade and to support the interests of the global trading community in Indian rupee," the bank said in its statement.

India-Malaysia bilateral trade, which has reached US$19.4 billion in FY 2021-22, is expected to benefit from the option to settle bilateral trade in Indian rupee, the bank said.