RBI Allows Rupee Lending by Authorised Dealer Banks in Neighbouring Countries

The Reserve Bank of India (RBI), led by Governor Sanjay Malhotra, has introduced a fresh set of initiatives to strengthen the international role of the Indian Rupee (INR). In its October Monetary Policy announced that Authorised Dealer (AD) banks in India and abroad will now be allowed to extend rupee-denominated loans to residents of Bhutan, Nepal, and Sri Lanka. 

The move, the RBI said, is part of its ongoing strategy to liberalise trade settlement mechanisms under FEMA and promote wider use of the rupee in cross-border commerce.

Promoting Regional Trade through INR Lending

By enabling direct INR lending, the RBI aims to simplify trade transactions between India and its neighbouring economies while reducing reliance on hard currencies such as the U.S. dollar. The framework is expected to cut transaction costs, stabilise currency flows in the region, and deepen regional trade linkages. The central bank noted that formal amendments to FEMA regulations to facilitate the new system will be issued soon.

“This calibrated step will help in facilitating cross-border trade transactions,” the RBI said, emphasising that improved INR liquidity access for foreign residents is key to advancing rupee internationalisation.

Expanded Opportunities for NRIs

In addition to regional lending reforms, the RBI announced several measures targeted at Non-Resident Indians (NRIs):

• Simplified borrowing and business entry: Rationalisation of the External Commercial Borrowing (ECB) framework and easing rules for non-residents establishing a business presence in India.
• Broader use of rupee accounts: Funds in Special Rupee Vostro Accounts (SRVAs) may now be deployed in corporate bonds and commercial papers, alongside new transparent reference rates for major currencies.
• Greater flexibility for exporters: The repatriation window for funds in IFSC accounts has been extended to three months (from one), and the forex outlay period for Merchanting Trade has been raised to six months (from four).
• Higher investment limits: The cap on individual foreign investors in listed Indian companies may rise from 5% to 10%, while the overall ceiling could increase from 10% to 24%.
• Remittance framework review: With outward transfers under the Liberalised Remittance Scheme crossing $30 billion in FY25, the RBI will revisit norms to encourage greater rupee use.
• Digital payments access: NRIs can now use UPI through international mobile numbers linked to NRE and NRO accounts, while banks gain more flexibility in authenticating cross-border card payments.

Read More: RBI Proposed Risk-Based Deposit Insurance and Lending Reforms to Boost Banking Stability!

Conclusion

The RBI’s latest announcements highlight a twin strategy: boosting the rupee’s role in regional trade and strengthening financial integration with India’s global diaspora. By allowing INR lending to neighbours and easing regulatory barriers for NRIs, the central bank is positioning the rupee as a more prominent player in international transactions while deepening ties with overseas Indians.

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