The Reserve Bank of India (RBI) has announced plans to allow Authorized Dealers (ADs) in foreign exchange and their overseas branches to extend loans in Indian Rupees (INR) to residents of Bhutan, Nepal, and Sri Lanka, as well as to banks situated in these countries. This initiative aims to enhance the settlement of cross-border transactions in INR and local currencies, aligning with the RBI’s broader strategy to internationalize the domestic currency.
The central bank indicated that it has been progressively relaxing regulations under the Foreign Exchange Management Act to facilitate this move. “To advance this initiative, it is essential to make INR liquidity available and accessible to residents of other countries,” the RBI stated.
As a measured step towards this goal, it has been decided that AD banks in India and their overseas branches may lend in INR to residents of Bhutan, Nepal, and Sri Lanka, thereby supporting cross-border trade transactions.
An inter-departmental group report from the RBI highlighted that the INR has the potential to emerge as an international currency, given India’s status as one of the fastest-growing economies and its robust resilience amid global challenges.
India has made significant strides in capital account convertibility, integration into global value chains, and the establishment of GIFT City. The increased use of INR for invoicing and settling international trade, as well as for capital account transactions, is expected to bolster its presence on the global stage, according to the report.
The inter-departmental group noted that the internationalization of a currency is closely linked to a nation’s economic growth and its role in global trade. The proposed measures for promoting the INR’s internationalization will include liberalizing the capital account, enhancing the international use of INR, and strengthening financial markets.
Published on October 1, 2025.
