The Reserve Bank of India (RBI) has allowed Indian banks and their overseas branches to lend in Indian rupees to residents of Bhutan, Nepal, and Sri Lanka, in a policy shift that could transform cross-border trade with neighbouring countries.
The RBI said the move is designed to simplify trade transactions, reduce dollar dependence, and promote the rupee’s regional role. The new framework forms part of the central bank’s wider effort to facilitate external trade and payments under the Foreign Exchange Management Act (FEMA).
Officials said the policy aligns with India’s long-term goal of making the rupee more visible and relevant in global trade, especially among South Asian economies with which India shares deep commercial and cultural ties.
Until now, most trade settlements with neighbouring countries relied on the US dollar or other foreign currencies, exposing small and medium enterprises to exchange-rate risks, conversion costs, and payment delays.
By allowing rupee-denominated lending, the RBI expects transactions to become smoother, cheaper, and more stable. The change is particularly beneficial for MSMEs that depend on imports and exports within the South Asian region.
Analysts say the move also reflects India’s growing confidence in the rupee’s stability and its bid to position the currency as a regional anchor for trade and finance.
In another major relaxation, the RBI has extended the repatriation period for funds held in foreign currency accounts at India’s International Financial Services Centres (IFSCs). Exporters will now have up to three months to bring back unused balances, giving them more operational flexibility.
This complements a rule introduced in January 2025, which allowed exporters to open foreign currency accounts abroad to manage export proceeds. Together, the measures are expected to improve cash flow management, ease regulatory compliance, and boost overall trade efficiency.
For Indian traders, the RBI’s dual reforms mean lower transaction costs, faster settlements, and greater liquidity management. For consumers, smoother trade with neighbouring nations could translate into more stable prices for imported goods and services.
The RBI’s latest policy is part of a broader mission to internationalise the rupee, making it a credible and convenient trade currency across South Asia. By deepening rupee usage in trade with Bhutan, Nepal, and Sri Lanka, the central bank hopes to strengthen India’s economic influence in the region while reducing reliance on the US dollar.
Experts view the initiative as a strategic step towards building a regional rupee trade network, enhancing financial cooperation, and paving the way for a more integrated South Asian economy.
