Boosting INR Globalisation: RBI Opens Corporate Debt To SRVA Holders

In a crucial step to enhance the global presence of the Indian Rupee (INR) and strengthen cross-border trade financing, the Reserve Bank of India (RBI) has released a circular on October 3, 2025, broadening the investment options for holders of Special Rupee Vostro Accounts (SRVA).Titled "Investment in Corporate Debt Securities by Persons Resident Outside India through Special Rupee Vostro Account," this directive: RBI/2025-26/90 A.P. (DIR Series) Circular No.13¹ represents a significant liberalisation of non-resident investment regulations under the Foreign Exchange Management Act (FEMA), 1999.By allowing SRVA holders to invest surplus rupee balances into corporate debt instruments, the RBI not only improves liquidity management for global traders but also creates new funding avenues for Indian companies, thereby invigorating a more dynamic debt market ecosystem.

This advancement comes at a time when international trade practices are increasingly leaning towards local currency settlements to reduce forex risks.Introduced in July 2022 through A.P. (DIR Series) Circular No.10, the SRVA framework aimed to facilitate INR-based invoicing and payments for import/export operations, lessening reliance on foreign currencies such as the US Dollar.Trading partners, including correspondent banks in nations like the UAE, Sri Lanka, and Russia, hold these accounts with Authorised Dealer (AD) Category-I banks in India to ensure smooth settlements.Nonetheless, surplus funds in SRVAs, resulting from unmatched inflows had previously remained dormant with limited yield prospects, often confined to low-risk options such as Central Government Securities (G-Secs) and Treasury Bills (T-Bills), according to the August 2025 circular².

The recently implemented provisions, which take effect immediately, expand this scope by categorising non-convertible debentures (NCDs), bonds, and commercial papers (CPs) issued by Indian firms as "eligible instruments."This is consistent with the definitions outlined in Schedule 1 of the Foreign Exchange Management (Debt Instruments) Regulations, 2019 (FEMA.396/2019-RB)³.For non-resident investors, this offers a range of diversified, higher-yield opportunities within the rupee market, potentially generating returns of 7-9% on corporate bonds in contrast to the sub-7% on government securities, contingent upon credit ratings and maturities.From a business perspective, it encourages more organisations to utilise INR settlements, thereby increasing trade volumes and establishing India as a competitive centre for bilateral trade.

Eligibility and Permissible Investments: A Gateway for Non-Residents

The eligibility criteria outlined in the circular are both clear and focused: It is specifically applicable to "persons residing outside India" who hold SRVAs for international trade settlements in INR.This effectively rules out speculative or portfolio-based inflows, thus maintaining the mechanism's foundation in authentic trade finance.Holders of SRVAs who are generally foreign banks or correspondent entities can now allocate surplus funds into three categories of corporate debt:

1. Non-Convertible Debentures (NCDs) and Bonds: These instruments are either unsecured or secured debt securities issued by Indian companies aimed at medium- to long-term financing.They provide fixed interest payments and principal return, catering to conservative investors in search of stable income sources.
2. Commercial Papers (CPs): These are short-term unsecured promissory notes with maturities of up to 365 days, making them ideal for addressing working capital requirements.CPs offer liquidity and flexibility, frequently yielding rates 50-100 basis points higher than T-Bills.

These investments must derive from SRVA balances, emphasising the trade-related purpose.The circular's incorporation into the Master Direction - Reserve Bank of India (Non-Resident Investment in Debt Instruments) Directions, 2025 (dated January 7, 2025)⁴, guarantees smooth regulatory supervision.Importantly, such inflows do not necessitate new FEMA approvals, simplifying processes for AD banks.For enterprises, this development broadens access to India's rapidly growing corporate bond market, which is valued at over ₹50 lakh crore as of mid-2025.Foreign entities can now engage without facing the challenges of distinct FPI registrations, as long as they transact through SRVAs.This could especially benefit sectors like manufacturing and renewables, where Indian companies issue NCDs to finance capital expenditures in response to increasing domestic demand.

Investment Limits and Relaxations: Balancing Risk and Accessibility

While the circular establishes guidelines to prevent market disruptions, it also introduces practical relaxations to foster uptake.Investments in NCDs, bonds, and CPs are consolidated under the "General Route" limits for FPIs, as detailed in paragraphs 4.2 and 4.4 of the Master Direction.The General Route sets a cap on corporate debt at ₹5 lakh crore overall, with sub-limits determined by residual maturity, for instance, up to 100% for papers with a maturity of less than one year.An appealing incentive is SRVA-specific exemptions from the minimum residual maturity requirement (typically one year for long-term debt) and issue-wise investment caps (10% per issuer).This adaptability is particularly beneficial for trade surpluses, which tend to be short-term and volatile.SRVA holders are therefore able to invest in shorter-tenor CPs without maturity limitations, effectively utilising idle funds without locking capital for the long haul.From a compliance perspective, SRVA holders and AD banks bear the responsibility of overseeing aggregate limits.Any breaches may trigger penalties under FEMA Sections 13 and 14, including fines that can reach up to three times the amount of the violation.AD banks are required to keep meticulous records, ensuring that investments remain within the FPI General Route thresholds.This shared responsibility helps alleviate systemic risks while enabling banks to provide value-added services, such as advisory on eligible issuances.The business implications here are significant.Indian corporates benefit from a diversified investor pool, thereby diminishing dependence on domestic mutual funds or banks.For example, a medium-sized textiles exporter could issue CPs through SRVA inflows from partners in the UAE, securing prompt funding at competitive rates.On the other hand, non-residents can hedge against currency risks by earning rupee yields, potentially reinvesting profits back into trade, and so creating a virtuous cycle for bilateral relations.

Compliance Framework: Operationalising the Shift

The circular establishes strong operational safeguards to seamlessly incorporate SRVA investments within the current market infrastructure.AD Category-I banks assume a pivotal role:

1. Demat Account Facilitation:Banks are required to facilitate distinct demat accounts for SRVA holders to securely hold NCDs, bonds, and CPs, keeping these assets separate from trade settlement ledgers.
2. Reporting Obligations:Transactions must be reported in real-time to SEBI-registered depositories (such as NSDL and CDSL) for limit reckoning under the General Route.This promotes transparency and helps avert over-allocation.
3. Notification Duties:Banks are responsible for promptly communicating these regulations to their constituents, thereby minimising the risk of unintentional non-compliance.

These measures are in alignment with the broader FEMA ecosystem, which includes the Foreign Exchange Management (Deposit) Regulations, 2016.Any violations could lead to audits by the RBI's Foreign Exchange Department, with AD banks potentially facing supervisory actions such as business restrictions.For legal professionals, this highlights the necessity for updated client advisories.Non-residents must perform due diligence on the creditworthiness of issuers through platforms like CRISIL or ICRA, while corporations should structure their issuances in accordance with SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021.From a tax perspective, interest income on these instruments is subject to a 20% withholding tax under Section 194A of the Income Tax Act, 1961⁵, with DTAA reliefs applicable for qualifying jurisdictions.

Business-Oriented Impacts: Catalysing Growth and INR Adoption

Beyond mere regulatory tweaks, the business implications outlined in the circular extend their influence across various stakeholders.For SRVA holders, mainly situated in G20+ nations, this opens the door to yield enhancements on surplus funds, projected at ₹10,000-15,000 crore each year from INR trade settlements.It may trigger a 20-30% increase in SRVA openings, according to industry forecasts, as organisations evaluate rupee yields in comparison to the costs associated with holding dollars.

Indian corporations stand to benefit significantly.With domestic credit growth averaging 12-15% YoY, a diverse influx of foreign capital through SRVAs could alleviate funding challenges, particularly for SMEs that do not qualify for ECBs. The corporate bond market, which has been predominantly driven by FPIs (holding a 70% share), might witness SRVA contributions growing to 5-10%, thereby providing stability in the face of FPI fluctuations.

On the macroeconomic scale, this advancement supports the RBI's initiative for INR internationalisation, aligning with frameworks such as the July 2022 trade settlement circular.By keeping foreign exchange within India, it helps maintain reserves (which stood at $650 billion as of September 2025) and prevents the erosion of import cover.In the realm of global trade, it establishes the INR as a credible alternative for energy and commodities transactions, potentially boosting India's participation in LC-denominated trade from 2% to 5% by 2027.

However, challenges remain as restrictions on currency convertibility and geopolitical tensions could dampen excitement. Nevertheless, with the RBI's proactive approach, demonstrated through previous G-Sec approvals makes the outlook positive.

Conclusion

The circular dated October 3, 2025, showcases the RBI's sophisticated strategy towards liberalisation, seamlessly integrating legal discipline with practical business considerations.By granting SRVA holders access to corporate debt, it not only enhances the efficient use of surplus but also strengthens India's trade finance framework.As non-residents and corporations explore this broader landscape, cooperation among AD banks, legal consultants, and market intermediaries will be essential to realise its full potential.In a time marked by de-dollarisation, this initiative underscores India's commitment to promoting a multipolar currency system.Stakeholders are encouraged to act swiftly as after all, in the debt markets, timing holds equal importance to tenor.With immediate implementation, the responsibility now lies in taking action, paving the way for a more integrated, rupee-focused global economy.

Footnotes

1 Bhandia, D. (2025). A.P. (DIR Series) Circular No. 13. InRESERVE BANK OF INDIA.

2 Notifications - Reserve Bank of India. (n.d.).

3 भारतीय विदेशी निवेश विभाग. (2019). भारतीय विदेशी निवेश विनियमन नियमावली , 2019. Inभारतीय राजपत्र.

4 Master Directions - Reserve Bank of India. (n.d.).

5 Income tax Department. (n.d.).

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