Kathmandu: India's central bank has taken another step towards internationalising the Indian rupee (INR). The Reserve Bank of India (RBI) is seeking the central government's approval for the first time to allow local banks to lend to foreign borrowers in Indian rupees, Reuters reported.

The RBI has sought the federal government's approval to allow Indian banks and their foreign branches to lend to foreign borrowers in Indian rupees to increase the use and acceptability of the Indian rupee in trade. The proposal sent to the Finance Ministry last month suggests that lending in rupees to non-residents could start with neighbouring countries Bangladesh, Bhutan, Nepal and Sri Lanka. According to data from the Indian Commerce Ministry, 90 per cent of India's South Asian exports in 2024-25 went to these four countries, totalling about $25 billion.

Currently, branches of Indian banks abroad are allowed to lend only in foreign currencies, and such loans are mainly given to Indian companies. India's central bank is taking various steps to increase the use of local currency in global trade and investment. As part of the same strategy, the RBI recently allowed non-residents to open accounts in rupees outside In

The RBI is planning to open accounts in rupees for foreign loans only for business purposes. Currently, loans in rupees in other countries are provided only through a limited number of government-backed credit lines or bilateral currency swap agreements. The central bank is said to aim to reduce dependence on such arrangements and instead allow commercial banks to provide liquidity in rupees on a market basis.

Easy access to rupee-denominated loans will also facilitate trade payments in rupees. It will also reduce the risk of foreign exchange fluctuations, sources said. The government is also said to have received requests from various financial institutions for rupee-denominated financing for strategic projects.

Reuters noted that agreements with the United Arab Emirates, Indonesia, and the Maldives to transact in local currencies, and special Indian currency vostro accounts used for trade with Sri Lanka and Bangladesh, confirm the need to further broaden the availability of rupee liquidity.