RBI Urges Banks to Boost Direct Rupee-Dirham Trade Settlements with UAE

UAE, 17 August, 2024 :  MUMBAI – The Reserve Bank of India (RBI) has asked banks involved in trade with the United Arab Emirates (UAE) to directly settle a portion of payments using the rupee and dirham, according to five banking sources. Although no specific targets have been set, the RBI has asked banks to regularly report the volume of such transactions.

This push builds on a 2023 initiative following Prime Minister Narendra Modi’s UAE visit, aiming to increase trade in local currencies and reduce reliance on the dollar. Around half of global trade is still dollar-denominated, as per the Bank for International Settlements.

The RBI is also revisiting discussions to expand local currency trade with Russia. Reports indicate that Indian refiners have already begun paying for Russian oil in dirhams instead of dollars through Dubai-based traders.

To foster a rupee-dirham market, the RBI advises banks to seek a matching dirham flow from another bank before converting rupees to dirhams, avoiding the dollar as an intermediary. The UAE is India’s third-largest trading partner, with bilateral trade reaching $83 billion in FY 2023-24, including over $17 billion in oil imports. Settling trade in local currencies could reduce India’s $12.4 billion trade deficit with the UAE.

While banks are receptive, the adoption of this mechanism is still in its early stages, according to one of the sources.

Source : www.zawya.com