The Reserve Bank of India (RBI) has allowed private lender HDFC Bank and state-run Canara Bank to open a special ‘vostro account’ for trade in rupees with Russia.

These two join three other Indian banks who had earlier received regulatory clearance for rupee trade. These include UCO Bank, Union Bank of India and IndusInd Bank.

Two Russian banks – Sber Bank and VTB – have also got the RBI nod. Both have branch presence in India. They are the first foreign lenders to receive the central bank’s approval after it announced the guidelines on overseas trade in rupee in July.

Vostro accounts are accounts a bank holds on behalf of another, often foreign bank, and this forms a key part of correspondent banking.

The situation of rupee trade arose because of sanctions the US and Europe imposed on Russia following Moscow’s invasion of Ukraine.  A large part of India’s bilateral trade with Russia is getting settled in the rupee.

 The vostro account facilitates settlement of payments in rupee for trade between India and Russia.