The Reserve Bank of India is making strides towards establishing a solid footing for itself in the global trade arena, the latest move being a push to allow rupee-denominated lending to facilitate foreign trade and lending – a first-of-its-kind initiative for Indian banks.
The changes were proposed through a submission made to the Finance Ministry last month, which seeks to permit both domestic banks and their overseas branches to extend trade-related loans in rupees to borrowers outside India.
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South Asian Coordinance
Understanding India’s position within the south asian region, the initiative targets are indeed neighbours Bangladesh, Bhutan, Nepal, and Sri Lanka. These markets have collectively accounted for nearly 90% of India’s regional exports in Financial Year (F.Y.) 2024-25, accruing almost $25 billion in value. RBI officials involved in the matter indicated that the framework, if successfully implemented, could later be extended to support rupee-based transactions globally.
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At present, Indian banks operating abroad are only allowed to issue loans in foreign currencies, which are primarily availed by Indian entities operating overseas. The RBI’s proposal challenges this long-standing practice, with a view to simplifying trade settlements and gradually building an ecosystem around the Indian rupee in international markets.
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The central bank has clarified that these proposed loans would be limited to trade purposes. Most importantly, the move would reduce the system’s reliance on existing methods of rupee liquidity. Existing currency swap lines or government-backed credit channels may be rehauled to enable commercial banks to extend rupee funding on standard market term
RBI has been making similar moves, permitting rupee accounts for non-residents and seeking to lift investment caps on foreign banks holding vostro accounts, all as part of a concerted push toward making the rupee globally palatable.
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Skinning the Bald Eagle
At its core, the initiative also reflects a broader, more coordinated effort across the globe to dethrone the U.S. dollar as the undisputed global oligarch of international finance. With Washington’s increasingly unpredictable stance on tariffs and global trade, particularly its threats to ASEAN countries and other nations, a movement to de-dollarize is gaining momentum across the globe.
The rupee’s internationalisation is not just an economic imperative but a geopolitical statement, aimed at mitigating the dominance of the dollar and asserting India’s growing confidence as a trade and financial powerhouse.
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Provided the proposal put forth by the RBI is approved, the humble Indian rupee may soon find itself circulating well beyond the shores of India, not just as a symbol of sovereignty, but as a pillar of a rearranged global order.
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