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Taking a step forward in internationalisation of the rupee, the Reserve Bank of India (RBI) on Wednesday said authorised dealer banks in India and their overseas branches will be permitted to lend in rupee to persons resident in Bhutan, Nepal and Sri Lanka, including a bank in these jurisdictions, to facilitate cross border trade transactions.
This is being facilitated to promote the settlement of cross border transactions in the rupee and local currencies, the Reserve Bank of India has been progressively liberalising regulations under the Foreign Exchange Management Act, the RBI said. “To take this initiative further, it is essential that the rupee liquidity is made available and accessible to residents of other countries,” it said.
The central bank also announced a host of steps to smoothen the process of cross border lending.
With a view to facilitate internationalisation of the currency, the RBI has decided to include select currencies of India’s major trading partners in the list of reference rates published by Financial Benchmarks India Limited (FBIL).
“This is expected to further deepen the onshore forex market and encourage banks to quote directly in a larger set of currency pairs, thus eliminating the need for multiple currency conversions and making trade more efficient,” the RBI said. FBIL has been advised to publish the new reference rates in consultation with the market, it said.
The internationalisation of the rupee is the process of promoting the Indian rupee for use in international trade, investment and finance, beyond its domestic role. Simply put, it involves encouraging foreign countries, companies, and investors to conduct cross-border transactions in rupees rather than relying on currencies like the US dollar or the euro.
Over the years, the development of the forex market has facilitated the growing integration of the Indian economy with the rest of the world in terms of trade and capital flows. At present, FBIL publishes reference rates for US dollar, EUR, pound and JPY against the rupee. These rates are widely used for settlement of forex transactions including derivatives.
Further, to expand investment opportunities in India for Special Rupee Vostro Accounts (SRVA) holders, the RBI has now decided to permit balances of these accounts to be invested in corporate bonds and commercial papers.
To promote exports from India and to support increasing interest of the global trading community in the rupee, the RBI had permitted SRVA in July 2022 to facilitate invoicing, payment, and settlement of exports / imports in INR. The arrangement permitted the rupee surplus balances in SRVA to be invested in government securities including treasury bills.
