RBI’s Bold Proposal to Lend Rupees Abroad
RBI’s Push to Internationalize the Indian Rupee: The Reserve Bank of India (RBI) is taking important steps to make the Indian Rupee (INR) more global. Recently, the RBI asked the Government of India for permission to let domestic banks lend rupees to borrowers outside India. This is a big deal because until now, Indian banks could only give loans in foreign currencies to overseas borrowers.
The idea is to promote the use of the rupee in international trade, especially with India’s neighbouring countries like Bangladesh, Bhutan, Nepal, and Sri Lanka. Initially, this lending in rupees will focus on these nearby countries but could expand worldwide if successful.
Why Focus on Neighbouring Countries?
Trade between India and its South Asian neighbours is significant. In the fiscal year 2024-25, India exported goods worth around $25 billion to South Asia. Of this, a whopping 90% went to Bangladesh, Bhutan, Nepal, and Sri Lanka. By allowing rupee loans here, the RBI aims to simplify transactions and make trade smoother by reducing reliance on foreign currencies like the US Dollar.
Steps RBI Has Taken So Far
The RBI has already made some smart moves to promote the rupee internationally. For example, it has allowed non-residents to open rupee accounts outside India, helping the currency flow more freely across borders. It has also pushed to remove caps on foreign banks’ vostro accounts, which deal with short-term Indian government debt.
These efforts encourage more rupee-denominated investments and trade, slowly building the currency’s acceptance beyond India.
Lending Restrictions and the New Approach
At present, Indian banks’ foreign branches are limited to offering loans only in foreign currencies. This limits the rupee’s role in cross-border trade. The RBI’s proposal to allow lending in rupees aims to reduce foreign exchange risk and make trade settlements easier for businesses.
Reducing Dependence on Government Lines of Credit
Currently, rupee liquidity in other countries mainly depends on government-backed credit lines or bilateral currency swap agreements. These arrangements are limited and restrict the rupee’s wider use. RBI wants commercial banks to take charge and provide rupee liquidity based on market demand rather than government support.
Past Success with Local Currency Agreements
India’s experience with local currency deals in countries like the United Arab Emirates, Indonesia, and Maldives shows that increasing local currency transactions is feasible. These agreements helped boost trade and financial cooperation, paving the way for the RBI’s current internationalisation strategy.
India’s fresh moves mark a new chapter in making the Indian Rupee a key player in global markets, especially within the South Asian region.
Static Usthadian Current Affairs Table
RBI’s Push to Internationalize the Indian Rupee:
| Topic | Details |
| RBI Initiative | Permission sought to allow rupee lending overseas |
| Initial Target Countries | Bangladesh, Bhutan, Nepal, Sri Lanka |
| India-South Asia Exports (2024-25) | Approx. $25 billion |
| Percentage to Neighbours | 90% of South Asia exports |
| Current Lending Restrictions | Loans only in foreign currencies |
| RBI Measures | Non-residents can open rupee accounts abroad; removal of caps on vostro accounts |
| Existing Currency Swap Partners | UAE, Indonesia, Maldives |
| Objective | Promote rupee in international trade, reduce forex volatility |
| Benefit | Easier trade settlements, increased rupee liquidity |
