KATHMANDU, Oct 7: The Reserve Bank of India (RBI) has allowed Nepali citizens and banks to borrow in Indian currency from Indian banks, a move that experts say could have mixed implications for Nepal’s economy, particularly its trade balance and banking sector.
Last Wednesday, the RBI announced that Indian banks and their foreign branches could now extend Indian rupee-denominated loans to residents and banks in Nepal, Bhutan, and Sri Lanka. According to The Indian Express, the measure represents a strategic shift as India seeks to expand its financial influence beyond its borders.
“Indian banks and their overseas branches can begin extending rupee-denominated loans to residents of neighboring countries such as Nepal, Bhutan, and Sri Lanka,” the report stated. “Both steps mark a strategic shift in how the RBI envisions India’s financial system—no longer inward-looking but geared towards building regional and eventually global influence.”
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Economists in Nepal have said the policy could bring both opportunities and challenges.
Bhuvan Kumar Dahal, former president of the Nepal Bankers’ Association, said the decision could prove beneficial during times of tight liquidity in Nepal’s banking system.
“It will be helpful mainly when traders are unable to secure loans from Nepali banks during liquidity shortages,” Dahal said.
However, Nara Bahadur Thapa, former executive director of Nepal Rastra Bank, warned that the policy could worsen Nepal’s trade deficit with India.
“As the policy could help strengthen India’s economy, Nepali traders might rely more on imports from India,” Thapa said. “In the long run, Nepali banks could also be affected as traders might prefer borrowing from Indian banks instead.”
India remains Nepal’s largest trading partner, accounting for nearly 65 percent of its total trade. In Fiscal Year 2024/25, Nepal’s trade deficit with India reached Rs 846.51 billion.
Indian media have reported that the RBI’s decision comes amid global financial volatility, with the central bank seeking to leverage India’s strong macroeconomic fundamentals—including $700 billion in foreign exchange reserves, robust services exports, and a narrowing current account deficit—to promote the Indian rupee internationally.
The policy is expected to boost demand for the rupee in regional transactions, reduce dependency on the U.S. dollar, and provide alternative financing options for India’s neighbors—while strengthening the rupee’s position as a competitive regional currency.
“We have been making steady progress in the use of the Indian rupee for international trade,” Indian media quoted RBI Governor Sanjay Malhotra as saying. The move is aimed at internationalizing the rupee and facilitating cross-border trade, investment, and financial transactions.
With the new provision in effect, major Indian banks such as the State Bank of India (SBI), ICICI Bank, HDFC Bank, and Axis Bank will be able to provide loans directly to Nepali residents and financial institutions.
