RBI rupee push: 3 measures to widen INR trade

What RBI announced and why it matters

The Reserve Bank of India (RBI) on Wednesday announced a set of measures to facilitate wider use of the Indian Rupee (INR) and other local currencies in international trade transactions. The steps are aimed at promoting the internationalisation of the rupee and expanding its use in trade, financing and investment. In parallel, the package is positioned as a way to reduce reliance on the US dollar for trade settlement, at a time when the US is pressurising emerging markets from moving against the dollar.

The RBI’s actions cover three areas: allowing cross-border lending in INR to select neighbouring countries for trade, expanding currency reference rates used by markets, and widening investment avenues linked to Special Rupee Vostro Accounts (SRVAs). The central bank said amendments to regulations and detailed guidelines will be notified shortly.

Measure 1: Cross-border lending in INR for trade

A key change is on trade-related financing. The RBI said authorised dealer (AD) banks will now be permitted to extend loans in Indian Rupees to non-residents from Bhutan, Nepal and Sri Lanka for trade-related transactions. The policy also indicates that AD banks in India and their overseas branches may soon be allowed to lend in INR to residents of these countries, including banks located there, to support cross-border trade.

By allowing rupee loans for trade, the RBI is enabling counterparties in the region to fund imports or exports linked to India without needing to raise dollars for settlement. The measure is framed specifically around cross-border trade transactions, rather than general-purpose lending.

Measure 2: More transparent FX reference rates via FBIL

The second move is focused on foreign exchange market plumbing. To promote settlement of cross-border transactions in INR and other local currencies, the RBI plans to expand reference rates published by Financial Benchmarks India Limited (FBIL). At present, FBIL publishes reference rates for USD, EUR, GBP and JPY against INR.

Under the new measures, FBIL will publish reference rates for select currencies of India’s major trading partners. The article cites the UAE’s dirham and the Indonesian rupiah as examples that will be added alongside the dollar, euro, pound and yen. The stated goal is to let banks quote directly in more currency pairs, reduce multiple conversions, improve price discovery and deepen the domestic forex market.

The RBI has also described this as a way to reduce dependence on cross-currency quotations, make pricing more predictable, and encourage greater rupee use in international invoicing and settlement.

Measure 3: Expanded use of Special Rupee Vostro Accounts

The third measure relates to SRVAs, which were introduced in July 2022 to facilitate invoicing, payments and settlement of exports and imports in INR. SRVAs are accounts maintained by foreign banks with Indian banks to enable direct settlement in Indian Rupees.

The RBI said it has expanded investment options for SRVA holders by making SRVA balances eligible for investment in corporate bonds and commercial papers. By allowing these balances to be deployed into additional instruments, the central bank is seeking to improve liquidity and increase the operational attractiveness of keeping trade settlement balances in INR.

Summary of the three measures

How the changes can reduce conversion layers in trade

A recurring issue in cross-border settlements is the number of currency conversions involved. When a transaction is invoiced or settled via an intermediary currency, it can add conversion spreads, additional documentation and timing mismatches. The RBI’s push for more direct INR currency pairs, backed by FBIL reference rates, is designed to reduce such intermediary conversions and help banks quote prices more directly against the rupee.

Separately, allowing INR lending for trade to Bhutan, Nepal and Sri Lanka supports the financing leg of settlement. It aligns trade credit with the same currency that may be used for invoicing and payments, which can reduce foreign exchange risk arising from mismatched borrowing and settlement currencies.

Context: RBI’s broader local-currency settlement push

The article also notes that RBI announced liberalised norms on January 16, 2025 aimed at promoting the use of the Indian Rupee and other local currencies for settling cross-border transactions. As part of that push, RBI has signed MoUs with the central banks of the United Arab Emirates, Indonesia and Maldives to facilitate cross-border transactions using local currencies, including the INR.

The same set of 2025 changes included liberalised FEMA regulations such as permitting overseas branches of AD banks to open INR accounts for non-residents for settling permissible transactions with Indian residents. It also allowed non-residents to settle transactions with other non-residents using balances in repatriable INR accounts like SRVAs and Special Non-resident Rupee accounts, and to use those balances for foreign investment, including Foreign Direct Investment (FDI), in non-debt instruments.

Market impact and what to watch next

The RBI’s latest measures are operational in nature, but they can influence how easily banks and businesses adopt INR-based settlement. The expansion of FBIL reference rates is aimed at making pricing more transparent and predictable for additional trading partner currencies, while the SRVA investment flexibility may make it easier for foreign banks to manage INR liquidity.

The RBI has said amendments to regulations will be notified shortly, and detailed guidelines for INR lending in the specified neighbouring countries will be issued. Those notifications will determine the exact operational conditions under which banks can extend INR loans and how expanded reference rates are implemented.

Conclusion

RBI’s three-part package combines trade finance, foreign exchange benchmarks and settlement-account flexibility to increase the rupee’s use in cross-border trade. The next steps are the notification of regulatory amendments and detailed guidelines that will govern implementation by authorised dealer banks and market participants.