RBI Proposes Rupee Loans to Overseas Borrowers to Boost Currency Internationalisation

Last Updated May - 26 - 2025, 05:24 PM | Source : Fela News

The Reserve Bank of India seeks government approval to allow Indian banks to lend Rupees to foreign borrowers, starting with South Asia, to promote the Rupee in

The Reserve Bank of India (RBI) is advancing efforts to internationalise the Rupee by seeking government approval to allow domestic banks to lend in Rupees to overseas borrowers for the first time, according to two sources.

The RBI has submitted a proposal to the Finance Ministry, recommending that Indian banks and their foreign branches be permitted to extend Rupee-denominated loans to non-residents. The initial focus would be on neighbouring countries—Bangladesh, Bhutan, Nepal, and Sri Lanka—where India conducted nearly $25 billion worth of exports in 2024–25, making up 90% of its trade with South Asia, according to data from the Ministry of Commerce.

Currently, Indian bank branches abroad can only issue loans in foreign currencies, primarily to Indian companies. The proposal, which was sent last month, remains under confidential discussion. Reuters reached out to the RBI and Finance Ministry for comment, but no responses were received.

This move is part of the RBI's broader push to promote the use of the Rupee in global trade and investment. As part of this initiative, the RBI has already allowed the opening of Rupee accounts for non-residents outside India. Earlier in May, Reuters also reported that the central bank had requested the removal of investment restrictions for foreign banks operating vostro accounts, enabling them to purchase short-term sovereign debt and thereby support Rupee-based trade and investments.

The sources explained that the plan would allow foreign lending in Rupees specifically for trade purposes. At present, Rupee liquidity abroad is limited to certain government-backed credit lines and bilateral currency swaps. The RBI aims to reduce reliance on these arrangements by enabling commercial banks to supply Rupee liquidity on market terms.

"Allowing easier access to Rupee loans for overseas borrowers would support trade settlements in Rupees and help mitigate risks from currency fluctuations," the second source said. They also noted that several financial institutions have asked the Indian government to facilitate Rupee-denominated funding for strategic projects.

India’s experiences with local currency agreements with the UAE, Indonesia, and the Maldives—as well as the use of Special Rupee Vostro Accounts for trade with Sri Lanka and Bangladesh—have highlighted the growing importance of expanding Rupee liquidity, the source added.

If adopted, this policy would represent a significant step in integrating the Rupee into the global financial architecture and advancing its status as a viable currency for international trade and finance.