RBI Seeks Approval for Rupee-Led Overseas Lending — All You Need to Know

Making inroads towards the internationalisation of the rupee, the Reserve Bank of India (RBI) has requested the government to facilitate domestic banks in lending rupees to overseas borrowers, Reuters reported.

The news agency reported that this proposal was sent by the Reserve Bank to the Finance Ministry. It allowed domestic banks and their foreign branches to facilitate loans to non-residents in neighbouring countries, including Bangladesh, Nepal, Sri Lanka, and Bhutan.

Will the move benefit the Indian economy?

The Centre aims to boost the circulation of the Indian rupee in foreign transactions, starting with neighbouring countries with which it shares strong diplomatic ties. Currently, foreign branches of Indian banks are barred from disbursing loans in foreign currencies, moreover, such loans are mainly restricted to Indian firms.

If overseas bank lending in INR receives a go-ahead, the circulation of Indian rupee will surge in the foreign trade.

Undertaken steps

The Reserve Bank of India (RBI) has taken several steps to increase the acceptance of Indian rupee in foreign transactions. Recently, RBI allowed the opening of rupee accounts for non-residents outside India. RBI also sought government’s permission to remove the cap on foreign banks with vostro accounts buying short-term sovereign debt. This was requested to boost rupee-denominated investment and trade.

As of now, Indian rupees are available via a limited number of government-backed credit lines or bilateral currency swap arrangements.