RBI permits AD banks in Bhutan, Nepal, Sri Lanka to lend in rupees; NRI rules eased
Oct 1, 2025
Synopsis
The RBI’s Monetary Policy Committee has allowed Authorised Dealer banks to lend in Indian Rupees to Bhutan, Nepal, and Sri Lanka to promote cross-border trade. Alongside, it announced measures for NRIs including simpler borrowing rules, extended trade timelines, higher investment limits, revised remittance norms, and wider access to digital payments.
The Reserve Bank of India’s Monetary Policy Committee (MPC), headed by Governor Sanjay Malhotra, on Wednesday announced that Authorised Dealer (AD) banks in India and their overseas branches will be permitted to lend in Indian Rupees (INR) to residents of Bhutan, Nepal and Sri Lanka. The step is intended to promote cross-border trade settlements in INR and local currencies.
The RBI said it has been progressively liberalising regulations under the Foreign Exchange Management Act (FEMA) to encourage trade settlement in rupees. Making INR liquidity accessible to residents of other countries is a crucial step in advancing this initiative.
“This calibrated step will help in facilitating cross-border trade transactions,” the central bank said in its statement.
The amendments to FEMA regulations enabling this framework will be issued shortly.
In recent years, the RBI has been promoting the use of the Indian Rupee for international trade to reduce dependence on hard currencies like the US dollar. This initiative is also in line with efforts by several economies to diversify trade settlement mechanisms. By expanding INR lending access through AD banks, the RBI aims to strengthen regional trade linkages, lower transaction costs, and support currency stability in the region.
Measures for NRIs
Alongside steps to boost rupee internationalisation, the MPC unveiled several initiatives targeting Non-Resident Indians (NRIs):
Simplifying business presence and borrowing rules: The RBI has proposed rationalisation of the External Commercial Borrowing (ECB) framework and easing regulations for non-residents setting up a business presence in India.
Expanding rupee internationalisation: Balances in Special Rupee Vostro Accounts (SRVAs) can now be deployed in corporate bonds and commercial papers. The RBI will also provide transparent reference rates for currencies of major trading partners.
Flexibility for exporters: The repatriation period for funds in IFSC accounts has been extended from one month to three months, while the forex outlay period for Merchanting Trade has been increased from four to six months.
Higher investment limits: The central bank is considering raising the cap for individual foreign investors, including NRIs, in listed Indian companies from 5% to 10%, and the combined ceiling from 10% to 24%.
Review of remittance rules: With outward remittances under the Liberalised Remittance Scheme touching $30 billion in FY25, the RBI will review the framework to rationalise rules and promote greater rupee use in transfers.
Digital payments access: NRIs can now use Unified Payments Interface (UPI) through international mobile numbers linked to NRE and NRO accounts. Banks have also been given flexibility in authentication of cross-border card transactions.
The measures reflect RBI’s intent to integrate NRIs more closely with India’s financial system while promoting the global use of the rupee. By easing rules for business entry, expanding investment limits, reviewing remittance norms, and broadening digital payment access, the central bank is seeking to strengthen NRI participation in India’s growth and financial markets.
[The Economic Times]
