The inspection cycle and annual review are separate controls
Paragraph 8(b) of RBI's Master Direction on exchange-house Rupee and foreign-currency vostro accounts requires half-yearly self-inspection through experienced officers. Competent authorities must carefully review the inspection reports so prompt corrective action follows. Observations also belong in the annual account review submitted to the Board or a committee to which the Board has delegated powers. This article concerns that inspection-to-action trail, rather than daily settlement calendars or collateral sizing. RBI Master Direction on exchange-house vostro accounts, paragraphs 7(b) and 8, October 2026.
Use the current governance wording
The direction is updated as of 1 October 2026. The current annual-review sentence allows the Board or an appropriately delegated committee. A committee's involvement requires actual delegation; an informal operational meeting is not automatically equivalent. Keep the annual review distinct from the half-yearly inspections and from concurrent audit. One activity may provide evidence to another but does not silently replace its separate requirement. RBI Master Direction on exchange-house vostro accounts, paragraphs 7(b) and 8, October 2026.
Design a review that tests actual account behaviour
Paragraph 8(a) calls for adequate internal controls and monitoring and credit-basis dealings without overdrafts. Set the inspection scope around the account population, period, balances, postings, exceptions and underlying arrangement requirements. Paragraph 7(b)'s concurrent-audit control examines whether vostro credit precedes beneficiary payment. Link useful findings across these controls while retaining their individual ownership. The direction does not prescribe the sampling percentage or report template used in the illustrations. RBI Master Direction on exchange-house vostro accounts, paragraphs 7(b) and 8, October 2026.
Turn observations into accountable actions
Assign an owner, evidence requirement and internal target to each finding. Record the competent authority's review and escalation of overdue or recurring issues. Prompt action is required; internal targets help operate that duty but are not RBI-mandated numerical deadlines. A finding is closed when the required correction is evidenced, not merely when somebody changes a spreadsheet status. RBI Master Direction on exchange-house vostro accounts, paragraphs 7(b) and 8, October 2026.
Do not confuse arithmetic coverage with adequacy
Counts of accounts or sampled entries show what was examined, not whether the sample is sufficient for every risk. Record why the selected population and procedures address the arrangement's risks, identify exclusions and investigate recurring findings. A high closure percentage cannot conceal one unresolved material funding-control issue. Retain the gross list rather than netting new findings against old closures. RBI Master Direction on exchange-house vostro accounts, paragraphs 7(b) and 8, October 2026.
Carry the evidence into the annual review
The annual account review should include inspection observations and their corrective-action position. Reconcile inspection reports, action records and the final governance paper. The model calendar below assumes internally selected January–June and July–December periods; the direction requires half-yearly inspection but does not itself prescribe those exact calendar boundaries or the illustrative internal target dates. RBI Master Direction on exchange-house vostro accounts, paragraphs 7(b) and 8, October 2026.
Applicable primary references
RBI Master Direction on exchange-house vostro accounts, paragraphs 7(b) and 8, October 2026
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: Plan two internal periods
An internal calendar uses January–June and July–December, each six months, giving two half-yearly inspection periods across twelve months. This is a chosen implementation calendar, not an RBI-specified June or December report-filing deadline.
Illustrative example 2: Reconcile the account population
The approved inspection register contains 18 Rupee and 7 foreign-currency accounts. Total population is 25. Reports identify 23 examined accounts, leaving 2 without documented coverage. Investigate the gap rather than declaring the population complete from the report count alone.
Illustrative example 3: Count findings and evidenced closures
An inspection identifies 12 findings. Evidence supports closure of 9, leaving 3 open and a 75% closure proportion. The three open findings retain their individual severity and ownership; the percentage is not an RBI safe harbour.
Illustrative example 4: Track an internal target accurately
Management sets an internal target of 15 November 2026. Closure evidence is dated 20 November, five calendar days later. The five-day variance is measured against that internal target, not a numerical deadline prescribed by paragraph 8(b).
Illustrative example 5: Do not net findings across periods
Four earlier findings remain open when a later inspection raises six new findings. Three of the earlier findings are then evidenced as closed. Outstanding findings are 4 + 6 − 3 = 7. A paper reporting only six new findings conceals one continuing earlier issue.
Illustrative example 6: Bridge the annual paper to reports
Two inspection reports contain 8 and 5 distinct observations, with no overlap. The annual-review control total is 13 observations. A draft paper carries 11, leaving 2 unreconciled. Their omission requires investigation even if both were corrected operationally.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Identify the account population | Approved Rupee and foreign-currency arrangement register. |
| 2 | Plan half-yearly inspections | Period coverage and responsible experienced officers. |
| 3 | Define risk-based procedures | Scope, account monitoring and applicable arrangement controls. |
| 4 | Link concurrent-audit evidence | Separate payment-funding findings and their source reports. |
| 5 | Document inspection results | Complete observations, exclusions and evidence. |
| 6 | Obtain competent-authority review | Recorded consideration and corrective directions. |
| 7 | Assign actions | Owners, internal targets and closure requirements. |
| 8 | Verify closure and escalation | Evidence of correction and unresolved material issues. |
| 9 | Reconcile the annual review | All inspection observations and action status. |
| 10 | Verify governance submission | Board consideration or evidence of valid committee delegation. |
Sixteen practitioner FAQs
1. Which provision requires self-inspection?
Paragraph 8(b) of the RBI direction on exchange-house vostro accounts.
2. How often is it required?
On a half-yearly basis.
3. Who should conduct it?
Experienced officers as required by that paragraph.
4. Who reviews the inspection reports?
The competent authorities in the AD Category-I bank.
5. What should follow the review?
Prompt corrective action on the inspection findings.
6. Is one annual inspection automatically enough?
No. The half-yearly inspection and annual account review are separate requirements.
7. Must the half-years be January–June and July–December?
Those are the model's chosen periods; do not present them as prescribed calendar boundaries.
8. Does the direction prescribe the example's sampling percentage?
No. Select and justify procedures appropriate to the risks.
9. Does concurrent audit replace self-inspection?
Do not treat distinct requirements as interchangeable; evidence can inform both.
10. What payment control is relevant to concurrent audit?
Paragraph 7(b) addresses vostro credit before beneficiary payments.
11. Are internal action targets statutory numerical deadlines?
No. They operate the corrective-action process without changing the direction's requirements.
12. Can a finding close without evidence?
A spreadsheet status alone does not establish that the underlying issue was corrected.
13. Can recurring findings be netted against new ones?
Retain their separate history so continuing issues remain visible.
14. Where do inspection observations go annually?
Into the annual account review submitted through the specified governance route.
15. May a committee receive the annual review?
The current wording permits a committee to which the Board has delegated powers.
16. Is an informal operational committee automatically sufficient?
No. Verify the actual governance authority and delegation.
Conclusion
Plan RBI exchange-house vostro self-inspections, track corrective actions and carry observations into the annual Board or delegated-committee review.