Source: ET
Context:
The Reserve Bank of India (RBI) announced key amendments under the Foreign Exchange Management Act (FEMA) to facilitate smoother external trade and payment mechanisms.
Objective: Enhance regional financial integration, improve export efficiency, and promote the internationalisation of the Indian Rupee.
Rupee Lending to Neighbouring Economies
Regulation: Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 – Amended in 2025
Key Highlights:
- Authorised Dealer (AD) banks in India and their overseas branches can now extend loans in Indian Rupees to persons or banks in Bhutan, Nepal, and Sri Lanka.
- Purpose:
- Reduce reliance on hard currencies like USD for regional trade
- Lower transaction costs and exchange rate risks
- Support easier trade finance, especially for Sri Lanka
- Strategic Significance:
- Supports India’s vision of Rupee internationalisation
- Promotes South Asia Regional Trade Integration
- Enhances cross-border payment systems (e.g., UPI expansion)
Extended Timeline for Repatriation of Export Proceeds
Regulation: Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) (Seventh Amendment) Regulations, 2025
Key Highlights:
- Exporters with foreign currency accounts (FCA) in IFSC banks in India can retain export proceeds for up to three months before repatriation (earlier: next month).
- Benefits:
- Provides flexibility in cash flow management and currency hedging
- Aligns with international trade finance practices
- Encourages use of IFSC-based banking units, boosting GIFT City’s role as a trade finance hub
- Improves operational efficiency while retaining regulatory oversight
Regulatory Alignment
- RBI amended the Master Directions on:
- Export of Goods and Services
- Deposits and Accounts
- Provides procedural clarity for AD banks, exporters, and financial institutions.
Significance of the Reforms
- Strengthens India’s position as a regional trade and financial anchor
- Deepens economic diplomacy with South Asian neighbours
- Facilitates operational efficiency for exporters amid volatile global trade
- Supports Rupee internationalisation and IFSC growth
