In a move that could reshape how India trades with its neighbours, 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. The change is meant to simplify cross-border trade transactions, reduce dollar dependence, and strengthen the rupee’s regional role.
The new framework comes as part of the RBI’s ongoing effort to promote external trade and payments under the Foreign Exchange Management Act (FEMA). It reflects the central bank’s broader strategy of making the rupee more prominent in international markets, especially among South Asian economies that share close trade ties with India.
Until now, trade settlements with neighbouring economies largely relied on the US dollar or other major foreign currencies. This made small and medium traders vulnerable to currency fluctuations, conversion costs, and delays in payment cycles.
By permitting rupee-denominated lending, the RBI hopes to make trade smoother, cheaper, and more stable for businesses — particularly MSMEs that depend on imports or exports within the region.
The RBI has also extended the repatriation period for funds in foreign currency accounts held at India’s International Financial Services Centres (IFSCs). Exporters will now have up to three months to bring back unused balances, offering more operational breathing room.
This update complements an earlier rule from January 2025, which allowed exporters to open foreign currency accounts abroad to manage export proceeds. The combined effect is greater ease of doing business and improved cash flow management for exporters.
For Indian traders, the move promises lower transaction costs, faster settlements, and fewer regulatory hurdles. For consumers, smoother trade could mean more stable prices for imported goods and services from neighbouring nations.
In essence, the RBI’s latest step is part of a broader mission — to internationalise the rupee and position it as a credible, convenient currency for trade across South Asia.
