RBI seeks approval for abroad Rupee lending to neighbours, say sources-OxBig News Network

The Reserve Bank of India has requested the Union Government to permit home banks and their international branches to lend Rupees to abroad debtors to reinforce the use and acceptability of the native forex in commerce.
| Photo Credit: Reuters

“The Central bank is taking another step to internationalise the Rupee, seeking approval to allow domestic banks to lend the currency to overseas borrowers for the first time,” two sources stated.

The Reserve Bank of India (RBI) has requested the Union Government to permit home banks and their international branches to lend Rupees to abroad debtors to reinforce the use and acceptability of the native forex in commerce.

“The proposal, which was sent to the Finance Ministry last month, suggests lending in Rupees to non-residents can begin in neighbouring countries such as Bangladesh, Bhutan, Nepal and Sri Lanka,” the sources stated.

“If successful, such Rupee-denominated lending could be extended to cross-border transactions globally,” one of many sources stated. According to Ministry of Commerce knowledge, 90% of India’s exports to South Asia had been to those 4 nations in 2024/25, amounting to almost $25 billion.

Currently, international branches of the banks are restricted to offering loans in foreign currency, and such loans are prolonged primarily to Indian corporations. The sources declined to be recognized because the discussions are confidential. Emails despatched by Reuters to the Finance Ministry and the RBI requesting remark didn’t obtain a response.

The RBI has been taking steps to extend using the Rupee in international commerce and funding. As a part of the technique, RBI just lately permitted the opening of Rupee accounts for non-residents outdoors India.

Earlier this month, Reuters reported that the RBI has sought authorities’s approval to take away the cap on international banks with so-called vostro accounts shopping for short-term sovereign debt, to spice up Rupee-denominated funding and commerce. “The RBI will open the foreign loans in Rupees only for the purpose of trade,” the sources stated.

Currently, Rupee liquidity is offered in different nations solely via a restricted variety of government-backed credit score strains or bilateral forex swap preparations. “The goal is to cut back dependence on such preparations and as an alternative permit industrial banks to supply Rupee liquidity on market phrases,” the primary supply stated, citing a communication from the central financial institution in April.

The second supply stated, “enabling easier access to rupee-denominated loans will help facilitate trade settlements in Rupees and reduce exposure to foreign exchange volatility.” “The government has received several requests from financial institutions to support strategic projects through rupee-denominated financing,” the second supply stated.

“India’s experience with local currency pacts with the United Arab Emirates, Indonesia, and the Maldives, as well as Special Rupee Vostro Accounts used for trade with Sri Lanka and Bangladesh, has underscored the need to deepen the availability of Rupee liquidity,” the supply stated.

“If implemented, the policy would mark a major step toward integrating the Rupee into the global financial system, positioning it as a more widely accepted currency for international trade and investment,” the second supply added.