RBI allows AD banks to extend rupee loans in Bhutan, Nepal, Sri Lanka

RBI Governor Sanjay Malhotra

The Reserve Bank of India (RBI) announced on October 1, 2025, that authorised dealer (AD) banks in India and their overseas branches will be allowed to extend rupee-denominated loans to residents and banks in Bhutan, Nepal, and Sri Lanka.

The move is part of the RBI’s broader effort to ease the settlement of trade transactions in the rupee and local currencies, governor Sanjay Malhotra said.

“To take this initiative further, it is essential that rupee liquidity is made available and accessible to residents of other countries,” the RBI governor added as he shared the monetary policy outcome.

The RBI has been taking steps to strengthen the rupee’s role in global trade, reduce dependency on foreign currencies and position India as a deeper participant in international finance.

The central bank also announced additional measures, including the inclusion of select currencies of India’s major trading partners in the list of reference rates published by Financial Benchmarks India Limited (FBIL), to support smoother cross-border lending.

This will deepen the onshore forex market, encourage banks to quote directly in more currency pairs, reduce the need for multiple conversions and improve trade efficiency, Malhotra said.

FBIL will publish the new reference rates in consultation with the market.

The internationalisation of the rupee, promoting its use for global trade, investment, and finance, has been a key RBI objective.

At present, FBIL publishes reference rates for the US dollar, euro, pound and the Japanese yen against the rupee. These rates are widely used for settlement of forex transactions, including derivatives.

The RBI has also allowed special rupee vostro account (SRVA) holders to invest surplus balances in corporate bonds and commercial papers, expanding investment opportunities.

Introduced in July 2022, SRVAs were designed to promote invoicing, payment and settlement of exports and imports in rupees, permitting surplus balances to be invested in government securities, including treasury bills.