India's central bank seeks approval for overseas rupee lending to neighbours, sources say
NEW DELHI: India's central bank is taking another step to internationalise the rupee, seeking approval to allow domestic banks to lend the currency to overseas borrowers for the first time, two sources said.
The Reserve Bank of India (RBI) has asked the federal government to allow domestic banks and their foreign branches to lend Indian rupees to overseas borrowers to enhance the use and acceptability of the local currency in trade.
The proposal, which was sent to the finance ministry last month, suggests lending in rupees to non-residents can begin in neighbouring countries such as Bangladesh, Bhutan, Nepal and Sri Lanka, the sources said.
If successful, such rupee-denominated lending could be extended to cross-border transactions globally, one of the sources said. According to Ministry of Commerce data, 90% of India's exports to South Asia were to these four nations in 2024/25, amounting to nearly $25 billion.
Currently, foreign branches of Indian banks are restricted to providing loans in foreign currencies and such loans are extended mainly to Indian firms.
The sources declined to be identified as the discussions are confidential. Emails sent to the Finance Ministry and the RBI requesting comment did not receive a response.
The central bank has been taking steps to increase the use of the local currency in global trade and investment.
As part of the strategy, RBI recently permitted the opening of rupee accounts for non-residents outside India.
India central bank to transfer record surplus of 2.69 trillion rupees to government for FY25
Earlier this month, Reuters reported the RBI has sought government's approval to remove the cap on foreign banks with so-called vostro accounts buying short-term sovereign debt, to boost rupee-denominated investment and trade.
The RBI will open the foreign loans in rupees only for the purpose of trade, the sources said.
Currently, rupee liquidity is provided in other countries only through a limited number of government-backed credit lines or bilateral currency swap arrangements.
'The objective is to reduce dependence on such arrangements and instead allow commercial banks to provide rupee liquidity on market terms,' the first source said, citing a communication from the central bank in April.
The second source said enabling easier access to rupee-denominated loans will help facilitate trade settlements in rupees and reduce exposure to foreign exchange volatility.
The government has received several requests from financial institutions to support strategic projects through rupee-denominated financing, the second source said.
India's experience with local currency pacts with the United Arab Emirates, Indonesia, and the Maldives, as well as Special Rupee Vostro Accounts used for trade with Sri Lanka and Bangladesh, has underscored the need to deepen the availability of rupee liquidity, the source said.
If implemented, the policy would mark a major step toward integrating the rupee into the global financial system, positioning it as a more widely accepted currency for international trade and investment, the second source added.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Express Tribune
2 hours ago
- Express Tribune
Pakistan airspace ban costs Air India Rs8.2b in 40 days
Listen to article As the airspace ban Pakistan slapped on Indian carriers drags on for forty days, the cost for Air India is turning from heavy to near-unsustainable, aviation sources said on Wednesday. The Indian national carrier has already taken a hit of over Rs8.2 billion since the closure began. According to well-placed aviation insiders, Air India is bleeding approximately Rs200 million each day due to longer alternate routes, increased fuel consumption and delays triggered by the airspace detour. In a sign of rising frustration, Air India's Chief Executive Officer Campbell Wilson has formally written to the Indian government, highlighting the scale of financial damage. In the letter, Wilson reportedly warned that continued restrictions could render airline operations unsustainable if not addressed soon. According to The Economic Times, an internal presentation showed that Air India had, late last year, set a target to become profitable by FY 27. However, the closure of Pakistani airspace for Indian carriers is likely to delay that. 'It will still take a little bit more time to achieve what we want to achieve, but it was a five-year project in the beginning,' Wilson said in the interview to the Economic Times, referring to the five-year transformation plan 'Vihaan' announced in September 2022. 'The closure of Pakistani airspace, which started on April 24, has forced Air India's flights to North America to take detours and stop in Vienna or Copenhagen to refuel, leading to increased expenses,' the report noted. 'It's not insignificant, but…as long as it covers the cost of operation, we will continue to operate,' Wilson said. 'We don't know the extent to which the bottom line is going to be affected. We will try to minimise the effect.' The CEO's concerns are not limited to Air India alone. Other Indian carriers have also reportedly suffered billions of rupees in cumulative losses, though precise estimates remain undisclosed. 'This isn't just turbulence, it's a full-blown storm for Indian aviation,' a senior aviation official remarked, noting that the 40-day closure has upended flight logistics, increased operational costs, and complicated international schedules for Indian carriers. The airspace restrictions, which came into effect in the wake of heightened diplomatic tensions, have now completed 40 days, with no breakthrough in sight. For airlines forced to circumvent Pakistani airspace, the sky is not only the limit but also a costly detour. As the ban continues, industry experts warn that Indian carriers might soon be compelled to cut routes or hike fares, passing the burden onto passengers, unless diplomatic channels find a way to clear the air.
Business Recorder
3 hours ago
- Business Recorder
PM Shehbaz says Pakistan-US relations entering new era
Prime Minister Shehbaz Sharif Wednesday declared that Pakistan-US relations are entering a new era while expressing hope that the recent ceasefire with India would prove lasting and durable, APP reported. Speaking at the US Embassy's Independence Day ceremony, the PM emphasized enhanced cooperation in trade, investment, IT, energy, and agriculture. PM Shehbaz noted historic bilateral relations, recalling US support for Pakistan's early nation-building projects like dams. He highlighted Pakistan's sacrifices as a frontline state post-9/11, suffering 90,000 casualties and $150 billion in economic losses. The PM called the Pulwama incident a 'false-flag operation,' citing Pakistan's restraint despite India's 'aggression,' including downing six Indian jets in self-defense. He praised President Trump's 'peacemaker' role in brokering the ceasefire after US officials urged de-escalation during clashes in May.
Business Recorder
3 hours ago
- Business Recorder
Reliance, Airtel group challenges ‘low' India satcom fee which can help Starlink
NEW DELHI: A group representing Indian telecom giants Reliance Jio and Bharti Airtel has said their businesses will suffer if India prices satellite spectrum at 'unjustifiably low' rates that benefit satellite internet services such as Elon Musk's Starlink. India's telecom regulator in May proposed satellite service providers pay 4% of their annual revenue to the government for offering services. Starlink had lobbied India not to auction spectrum but just assign licences in line with a global trend, saying it is a natural resource that should be shared by companies. The Cellular Operators Association of India in a May 29 letter to the telecoms ministry sought a review of those pricing proposals, saying traditional players pay higher upfront auction charges for telecoms spectrum which make their payments to the government for spectrum roughly 21% higher, when compared to what satellite players would pay. 'Price per MHz should be equivalent or at least comparable for both, especially when used to reach the same consumers for identical services,' said the letter, seen by Reuters. 'Satellite services can offer competitive and affordable alternatives to terrestrial broadband,' it added. Reliance, led by Asia's richest man Ambani, and Airtel didn't respond to Reuters' request for comment. Starlink was not immediately available for comment. A senior Indian government source told Reuters on Wednesday the telecoms ministry is still reviewing the pricing recommendations made by the regulator, adding such industry concerns have been raised in the past. Telecom players like Reliance Jio are concerned they will be offering similar wireless broadband services as satellite providers but paying much more, said an industry source with direct knowledge of the situation. Reliance and others have spent nearly $20 billion in recent years to get 5G spectrum via auctions to offer telecom, data and broadband services. Ambani's company unsuccessfully lobbied New Delhi for months to auction satellite spectrum, and not allot it administratively as Musk's Starlink wanted. Though Reliance and Airtel have signed distribution deals in March for Starlink equipment, they will continue to compete with Musk's offerings to customers once launched. The process of Starlink getting a license is 'nearly complete', telecoms minister Jyotiraditya Scindia told The Print news website on Tuesday.
