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RBI FEMA Amendment: Bhutan, Nepal & Sri Lanka Entities can now Borrow from Indian Authorised Dealer Banks [Read Notification]

The Reserve Bank of India projects this amendment as part of its ongoing initiatives to internationalise the Indian Rupee and strengthen regional monetary linkages.

RBI FEMA Amendment 2025 - FEMA Borrowing and Lending Regulations - Rupee lending to Bhutan Nepal Sri Lanka
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The Reserve Bank ofIndia (RBI) has promulgated the Foreign Exchange Management (Borrowing and Lending) (Amendment) Regulations, 2025 enabling Authorised Dealer (AD) Category-I Banks in India to lend in Indian Rupees to residents and banks in Bhutan, Nepal and Sri Lanka for cross-border trade transactions.

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The latest amendment, issued via Notification No. FEMA 3(R)(4)/2025-RB, dated October 6, 2025 revises the provisions of the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018.

A new clause (iv) in sub-regulation (A) of Regulation 7 of the 2018 regulations has been introduced, which expressly provides that: “An AD bank may lend in Indian Rupees to a person resident outside India being a resident in Bhutan, Nepal or Sri Lanka, including a bank in these jurisdictions, for cross-border trade transactions.”

The latest reform has been empowered by the powers conferred by Section 6(2) and Section 47 of the Foreign Exchange Management Act, 1999, formally recognising Rupee-denominated lending as a permissible activity under FEMA.

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Strengthening the Indian Rupee

The Reserve Bank of India projects this amendment as part of its ongoing initiatives to internationalise the Indian Rupee and strengthen regional monetary linkages. In effect, the measure replaces previous restrictions that limited the ability of Indian banks to provide rupee-denominated cross-border loans and instead creates a concrete framework for trade-related financing in the region.

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India has been lately expanding its mechanism to trade in Rupees with partner countries to reduce dependency on different countries’ currencies, the move is slated to promote regional financial stability and integrate India’s financial system with that of its neighbours.

Earlier this month, the central bank allowed surplus balances in Special Rupee Vostro Accounts to be invested in corporate instruments such as bonds, non-convertible debentures, and commercial papers, moving beyond government securities. Together, these measures are projected to strengthen India’s Rupee.

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The effects of the notification shall be effective from the date of its publication, i.e., 6th October, 2025. It has been issued by the Foreign Exchange Department of the RBI and has been undersigned by Dr. Aditya Gaiha, Chief General Manager-in-Charge.

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Notification No: FEMA 3(R)(4)/2025-RB
Date of Judgement :  6 October 2025

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