RBI Allows AD Banks to Lend in INR to Bhutan | Nepal | Sri Lanka

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  • Last Updated on 14 October, 2025

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RBI INR Lending Bhutan Nepal Sri Lanka 2025

Notification No. FEMA 3(R)(4)/2025-RB., Dated: 06.10.2025

1. Introduction

The Reserve Bank of India (RBI) has announced a key regulatory development through the Foreign Exchange Management (Borrowing and Lending) (Amendment) Regulations, 2025. This amendment introduces a crucial change to Regulation 7 of the principal regulations, which deals with “Lending in Indian Rupees by a Person Resident in India.” The move marks a significant step towards strengthening regional trade and financial cooperation with India’s neighbouring countries.

2. Key Regulatory Change

Under the amended framework, a new clause has been inserted into Regulation 7 to expand the scope of rupee lending by Authorised Dealer (AD) banks. This new provision explicitly allows AD banks in India to extend loans or credit facilities in Indian Rupees to persons resident outside India, specifically to individuals and entities based in Bhutan, Nepal, or Sri Lanka. This includes banks incorporated or operating in these jurisdictions.

 3. Facilitating Regional Trade

The primary objective of this amendment is to facilitate smoother cross-border trade transactions between India and its neighbouring countries. By enabling rupee-denominated lending to borrowers in Bhutan, Nepal, and Sri Lanka, the RBI aims to reduce dependency on third-currency settlements and strengthen the role of the Indian Rupee in regional trade. This step also aligns with India’s broader objective of promoting rupee internationalisation in the South Asian region.

 4. Benefits to Stakeholders

This regulatory update is expected to benefit multiple stakeholders. Importers and exporters in these countries will gain easier access to rupee credit facilities, enabling faster settlement of trade transactions. Banks in Bhutan, Nepal, and Sri Lanka will be able to facilitate their clients’ trade with India more efficiently. Additionally, Indian AD banks will see an expansion in their international lending portfolio, thereby increasing their regional presence and financial integration.

5. Conclusion

The amendment to the RBI’s borrowing and lending regulations marks a progressive policy move to enhance India’s economic engagement with neighbouring nations. By enabling rupee-denominated cross-border lending, India is taking a firm step toward promoting financial stability and trade efficiency in the region. This development is expected to further boost trade relations with Bhutan, Nepal, and Sri Lanka while strengthening the strategic role of the Indian Rupee in regional commerce.

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Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied