The Reserve Bank of India (RBI) on Wednesday, October 1, 2025, announced a series of measures aimed at expanding the role of the Indian Rupee (INR) in global trade and financial markets. The steps are expected to deepen the internationalisation of the domestic currency, reduce reliance on the US dollar, and strengthen India’s external sector resilience.

Banks Allowed to Lend in Rupees to Neighbouring Countries

In a key move, the RBI has permitted Authorised Dealer (AD) banks to lend in Indian Rupees to non-residents from Bhutan, Nepal, and Sri Lanka for bilateral trade transactions.

RBI Governor Sanjay Malhotra, while announcing the measures after the Monetary Policy Committee (MPC) meeting, said India has been making steady progress in the use of the Rupee for international trade. The new framework, he added, will provide greater flexibility for cross-border settlements and promote wider acceptance of the INR in regional commerce.

Transparent Reference Rates for INR Transactions

To facilitate INR-based trade settlements with major partners, the Governor proposed establishing transparent reference rates for the currencies of India’s key trading partners. This is expected to bring clarity and confidence to businesses and banks engaging in cross-border INR transactions.

Wider Use of Special Rupee Vostro Accounts

The central bank has also expanded the scope of Special Rupee Vostro Accounts (SRVAs), allowing balances in these accounts to be invested in corporate bonds and commercial papers.

SRVA is an arrangement under which a foreign bank opens an account with an Indian bank to settle international trade transactions directly in Indian Rupees. The expanded utility of these accounts is aimed at boosting liquidity, encouraging foreign participation, and reducing dollar dependency in trade finance.

Aiming to Reduce Forex Pressure and CAD

According to the RBI, these initiatives will help reduce pressure on India’s foreign exchange reserves, mitigate currency risks, and keep the current account deficit (CAD) at a sustainable level.

Governor Malhotra highlighted that India’s CAD moderated to $2.4 billion (0.2% of GDP) in the first quarter of FY2025-26, compared to $8.6 billion (0.9% of GDP) in the same period last year. The improvement was largely due to a strong services surplus and robust remittance inflows, despite a higher merchandise trade deficit.

“Robust services exports coupled with strong remittance receipts are expected to keep the CAD sustainable during 2025-26,” he noted.

Foreign Exchange Reserves and External Sector Resilience

As of September 26, 2025, India’s foreign exchange reserves stood at $700.2 billion, sufficient to cover more than 11 months of merchandise imports.

The Governor reiterated that India’s external sector continues to remain resilient and assured that the RBI is confident of meeting all external obligations comfortably.

INR Volatility Under Close Watch

While India’s macroeconomic fundamentals remain robust, the Rupee has witnessed phases of depreciation and volatility in recent months. The RBI is closely monitoring movements in the domestic currency and remains ready to intervene when necessary.

“Notwithstanding the robust domestic macroeconomic fundamentals, the INR has witnessed some depreciation accompanied by phases of volatility. RBI is keeping a close watch and will take appropriate steps, as warranted,” Malhotra said.

Conclusion

The measures unveiled by the RBI underscore its intent to gradually internationalise the Indian Rupee by encouraging its wider use in trade and financial markets. By permitting regional trade lending in Rupees, expanding SRVA usage, and creating transparent reference rates, the central bank aims to build confidence in the currency globally.

With strong forex reserves, healthy services exports, and resilient remittance flows, India’s external sector remains on a firm footing even amid global uncertainties.

References

1. Reuters — “India’s central bank proposes to boost international usage of rupee”
2. Economic Times — “RBI permits AD banks in Bhutan, Nepal, Sri Lanka to lend in rupees; NRI rules eased”
3. Economic Times (Explainer) — “Explained: How the RBI is internationalising the rupee?”
4. India Law / Mondaq — “RBI removes hurdles for rupee trade settlement, boosting global use of INR”

Disclaimer: This article is based on information available from public sources. It has not been reported by EQMint journalists. EQMint has compiled and presented the content for informational purposes only and does not guarantee its accuracy or completeness. Readers are advised to verify details independently before relying on them.