RBI announces steps to encourage cross-border transactions in Indian rupee

The Reserve Bank has already signed Memorandum of Understanding (MoU) with the central banks of the United Arab Emirates, Indonesia and Maldives to encourage cross-border transactions in local currencies, including Indian Rupee.

New Delhi: Amid a record slump in rupee and muted exports, the Reserve Bank of India (RBI), on Thursday, liberalised the Foreign Exchange Management Act (FEMA) regulations to encourage the use of Indian currency for settlement of cross-border transactions.

As per the revised regulations, Indian exporters will now be able to open accounts in any foreign currency overseas to settle trade transactions, including receiving export proceeds. These proceeds can also be used for payment towards imports.

Additionally, overseas branches of authorised dealer banks will be able to open INR accounts for a person residing outside India for settlement of all permissible current account and capital account transactions with a person residing in India, the RBI said.

Persons outside India will be able to settle bona fide transactions using the balances in their repatriable INR accounts such as Special Non-resident Rupee account and Special Rupee Vostro Account (SRVA).

“In order to promote cross border transactions in INR and local/national currencies, a further review of the existing regulations issued under FEMA, 1999 has been undertaken by the Reserve Bank in consultation with the Central Government,” as per a statement released by the RBI.

Under the revised rules, non-resident Indians (NRIs) can use their money held in repatriable INR accounts for foreign investments, including foreign direct investment (FDI), in non-debt instruments.

The liberalised rules will make cross-border transactions easier. It is also likely to give strength to the Indian rupee, which has fallen sharply recently.

"These amendments are steady steps to make Indian Rupee more popular globally and equips our exporters with greater flexibility in concluding their transactions overseas," said Akash Chauhan, Director of Regulatory Affairs at IndusLaw.

Moreover, these amendments reflect the efforts being taken to make the Special Non-Resident Rupee (SNRR) account more attractive for overseas entities, thereby increasing investor confidence," Chauhan added.

The rupee slumped below 86.5 against a dollar for the first time this week.

Export performance has remained volatile this fiscal. After steady growth in the first quarter, merchandise exports contracted in the second quarter. Outbound shipments experienced a brief resurgence in October but declined in November and December.

The cumulative value of merchandise exports during April-December 2024 was $321.71 billion, 1.6% higher than $316.65 billion recorded in the corresponding period of the previous year.

“Geopolitical uncertainties, including the proposed tariff hikes by the Donald Trump administration, continue to pose risks,” CRISIL said in a note.