Indian banks could soon offer loans to neighboring countries
What's the story
The Reserve Bank of India (RBI) is seeking government nod to permit domestic banks to lend Indian rupee (INR) to overseas borrowers. The first target of this move is neighboring countries like Bangladesh, Bhutan, Nepal, and Sri Lanka. The main goals are to encourage the use of the INR in international trade, decrease reliance on currency swap arrangements, and make trade settlements easier while curbing foreign exchange volatility.
Proposal details
Proposal to enhance rupee's global acceptance
The RBI has proposed that domestic banks and their foreign branches be permitted to lend INR to overseas borrowers. The move is aimed at boosting the use and acceptability of the local currency in trade. The proposal was submitted to the finance ministry last month, and if successful, could potentially extend rupee-denominated lending to cross-border transactions across the globe.
Strategic moves
Strategy to boost local currency in global trade
The central bank has been taking steps to promote the use of the local currency in global trade and investment. Just recently, the RBI allowed opening rupee accounts for non-residents outside India. It also sought the government's approval to lift restrictions on foreign banks with vostro accounts buying short-term sovereign debt, in a bid to promote rupee-denominated investment and trade.
Loan policy
RBI's plan for foreign loans in rupees
The RBI intends to open foreign loans in rupees only for trade purposes. At present, rupee liquidity is offered in other countries only through a few government-backed credit lines or bilateral currency swap arrangements. The aim of this move is to minimize dependence on such arrangements and enable commercial banks to offer rupee liquidity on market terms.