RBI seeks approval for overseas Rupee lending to neighbours, say sources

RBI seeks approval for domestic banks to lend Rupees to overseas borrowers, aiming to boost global trade in Rupee.

“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 said.

The Reserve Bank of India (RBI) has asked the Union Government to allow domestic banks and their foreign branches to lend Rupees to overseas borrowers to enhance the use and acceptability of the local currency in trade.

“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 said.

“If successful, such Rupee-denominated lending could be extended to cross-border transactions globally,” one of the sources said. According to Ministry of Commerce data, 90% of India's exports to South Asia were to these four nations in 2024/25, amounting to nearly $25 billion.

Currently, foreign branches of the banks are restricted to providing loans in foreign currencies, and such loans are extended mainly to Indian firms. The sources declined to be identified as the discussions are confidential. Emails sent by Reuters to the Finance Ministry and the RBI requesting comment did not receive a response.

The RBI has been taking steps to increase the use of the Rupee in global trade and investment. As part of the strategy, RBI recently permitted the opening of Rupee accounts for non-residents outside India.

Earlier this month, Reuters reported that the RBI has sought government's approval to remove the cap on foreign banks with so-called vostro accounts buying short-term sovereign debt, to boost Rupee-denominated investment and trade. “The RBI will open the foreign loans in Rupees only for the purpose of trade,” the sources said.