RBI to Allow Loans in INR to Residents of Nepal, Bhutan, and Sri Lanka to Facilitate Cross-Border Trade

The Reserve Bank of India (RBI) on October 1 announced that Authorised Dealer (AD) banks in India and their overseas branches may be permitted to extend loans in Indian Rupees (INR) to residents of Nepal, Bhutan, and Sri Lanka — including banks in these countries — to facilitate cross-border trade transactions.

The RBI said related regulatory amendments will be issued shortly to formalise the provision.

“In order to promote the settlement of cross-border transactions in INR and local currencies, the Reserve Bank of India has been progressively liberalising regulations under the Foreign Exchange Management Act,” the announcement stated. “To advance this initiative, it is essential that INR liquidity is made available and accessible to residents of other countries. As a calibrated step in this direction, it has been decided that AD banks in India and their overseas branches may be permitted to lend in INR to persons resident in Bhutan, Nepal, and Sri Lanka, including a bank in these jurisdictions, to facilitate cross-border trade transactions. Amendments to regulations will be notified shortly.”

Banks authorised to conduct foreign currency transactions will now be allowed to offer this facility. State Bank of India (SBI), ICICI Bank, SDFC Bank, and Axis Bank are among the banks that will be able to extend loans in Indian rupees to Nepali citizens and banks.

According to The Economic Times, the move aligns with efforts by several economies to diversify trade settlement mechanisms.

India accounts for more than 60 per cent of Nepal’s international trade. Indian rupees have traditionally been the primary currency for bilateral trade, although the US dollar is also used for certain imports, particularly raw materials.

According to the Department of Customs, Nepal exported goods worth around Rs 224.68 billion to India and imported goods valued at approximately Rs 1,071.19 billion in the fiscal year 2024/25, which ended mid-July. During that period, India accounted for 62.26 per cent of Nepal’s total international trade.