RBI Clears Rupee Lending for Bhutan, Nepal & Sri Lanka to Boost Cross-Border Trade

India widens its rupee reach to neighbours through a new trade and lending rule designed to cut foreign currency dependence.

Every trader knows how long it takes to settle a payment that crosses borders. Until now, many exporters and importers in South Asia relied on the US dollar or other foreign currencies. That may change soon. 

The Reserve Bank of India (RBI) has approved rupee-denominated lending to Bhutan, Nepal, and Sri Lanka. The move, part of the latest update under the Foreign Exchange Management Act (FEMA) in October 2025, could reshape how regional trade is financed.

According to a Reuters report published in May 2025, these three countries, along with Bangladesh, accounted for about USD 25 billion of India’s exports in FY 2024–25, representing nearly 90% of India’s total exports to South Asia.

RBI Rupee Lending Policy For South Asian Countries

The RBI rupee lending policy for South Asian countries was introduced through Notification No. FEMA 3(R)(4)/2025-RB, dated October 6, 2025. The amendment allows authorised dealer (AD) banks in India and their overseas branches to lend directly in rupees to businesses or banks in Bhutan, Nepal, and Sri Lanka. The lending is strictly for trade-related transactions.

The RBI stated that this decision aims to “facilitate cross-border trade settlement and enhance the international use of the Indian rupee.” The policy restricts loans to trade activities only and prevents misuse for general borrowing.

Before examining how the policy works in practice, it is helpful to understand how these neighbours fit into India’s trade structure.
 

The table shows why India has prioritised these countries for rupee-based lending. They already account for the largest share of India’s neighborhood trade. By settling transactions in rupees, the RBI hopes to make trade smoother and less dependent on dollar conversions.

India Cross-Border Trade In Rupees 2025 Update

As per the Ministry of Commerce’s Annual Report 2024–25, India’s merchandise exports touched USD 437.07 billion, while imports stood at USD 678.21 billion. This resulted in a trade deficit of USD 241.14 billion. Though the deficit widened in 2023–24, exports to neighbouring countries continued to grow steadily.

The table below summarises the latest trade numbers.
 

Source

These figures illustrate why the new India cross-border trade in rupees 2025 update is significant. Reducing reliance on foreign currency will lower exchange rate risk and transaction costs. 

For smaller traders in border regions, access to rupee credit can make business operations more stable and easier.

RBI Approval For Rupee Loans To Neighboring Nations

This is not the first time the central bank has tried to simplify trade payments. Earlier, in January 2025, the RBI permitted exporters to open foreign currency accounts abroad. It also extended the repatriation period of export proceeds held in IFSC (International Financial Services Centre) accounts from one month to three months.

These back-to-back reforms show that the RBI is building a system to internationalise the rupee gradually.
 

Together, these measures are part of broader Reserve Bank of India cross-border payment reforms. The intention is to position the rupee as a settlement and lending currency in South Asia.

Bhutan, Nepal, Sri Lanka: Rupee Trade Initiative

The Bhutan, Nepal and Sri Lanka rupee trade initiative builds on earlier steps to expand rupee-based international trade. In 2023, the RBI introduced Special Rupee Vostro Accounts (SRVAs) to help partner countries settle trade payments in rupees instead of foreign currency.

The new 2025 lending policy takes this plan further. It not only supports trade settlements but also allows exporters and importers to take loans directly in rupees for trade finance. This reduces dependence on foreign currency credit lines and helps strengthen India’s position in regional trade.

As LoansJagat explained in “How Is the RBI Promoting Internationalisation of the Rupee?”, the RBI’s efforts to widen rupee use in cross-border trade are part of a long-term goal to make the rupee stronger globally. 

This step shows India’s growing confidence in using its own currency for trade and finance in South Asia.

Reserve Bank Of India Cross-Border Payment Reforms: Then And Now

India’s central bank has experimented with several trade finance tools in the past decade. The pattern shows a steady effort to increase rupee liquidity and reduce dollar dependency.
 

These reforms share a common aim: strengthening trade partnerships and increasing the use of the rupee in cross-border settlements. However, the lending policy differs because it introduces direct credit lines, not just settlement accounts.

The 2025 notification also aligns with the RBI’s plan to introduce rupee reference rates against key Asian currencies such as the Indonesian rupiah and UAE dirham. This move will make it easier for banks and traders to quote and transact in rupees internationally.

Conclusion

The RBI rupee lending policy for South Asian countries marks a turning point in India’s trade strategy. By allowing rupee-based credit for cross-border transactions, India is not only helping neighbouring economies but also taking a clear step towards regional financial integration.

As the Reserve Bank of India's cross-border payment reforms continue through 2025, the rupee is poised to become more than a domestic currency; it may soon serve as South Asia’s trade bridge.

 

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