RBI Eases Rupee Lending to Boost Trade with Bhutan, Nepal, Sri Lanka

In a strategic move to boost regional trade and enhance external payment systems, the Reserve Bank of India (RBI) has announced that Indian banks and their overseas branches can now lend in Indian Rupees to residents and banks in Bhutan, Nepal, and Sri Lanka. This measure, revealed on October 13, 2025, is expected to streamline cross-border trade transactions and expand the use of the rupee in South Asia.

Key Policy Update

According to the RBI, Authorised Dealer (AD) banks in India and their overseas branches are now officially permitted to,

• Lend in Indian Rupees
• To persons and banks in Bhutan, Nepal, and Sri Lanka
• For the purpose of facilitating cross-border trade

This liberalization is part of amendments made to two key regulations,

• Foreign Exchange Management (Borrowing and Lending) Regulations, 2018
• Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) Regulations, 2015

The central bank stated that the change is in line with its ongoing efforts to facilitate external trade and payments, while also strengthening the rupee’s role in regional commerce.

Impact on Regional Trade

This policy is particularly important for,

• Neighbouring economies facing dollar shortages, such as Sri Lanka
• Trade diversification efforts with Bhutan and Nepal
• Rupee invoicing and settlement mechanisms already in place

By allowing rupee-denominated lending, India aims to reduce dependence on USD or other foreign currencies for bilateral trade in the South Asian region.

Changes to Exporter Account Repatriation Rules

In a related move, the RBI also updated norms for foreign currency accounts maintained by Indian exporters,

• In January 2025, exporters were allowed to open foreign currency accounts outside India for export proceeds.
• Now, the repatriation deadline for unutilized balances in foreign currency accounts maintained within Indian IFSCs (International Financial Services Centres) has been extended to three months from the date of realisation.
• This extension aims to provide flexibility to exporters dealing with overseas buyers and currency conversion issues.

Static Facts on

• Announced By: Reserve Bank of India (RBI)
• Date: October 13, 2025
• Main Update: Indian banks can lend in INR to Bhutan, Nepal, Sri Lanka residents and banks
• Legal Amendments
• FEMA (Borrowing and Lending) Regulations, 2018
• FEMA (Foreign Currency Accounts) Regulations, 2015
• Exporters’ Rule Change
• Repatriation period extended to 3 months for foreign currency accounts in Indian IFSCs
• Purpose: Facilitate cross-border trade and payments
• Region Focus: South Asia (Bhutan, Nepal, Sri Lanka)