RBI Introduces Reforms to Boost Cross-Border Trade

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:
  1. Export of Goods and Services
  2. 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