RBI’s Baby Steps on Rupee Globalisation: Useful Nudges, But…

In its latest policy statement, the Reserve Bank of India added three nudges to its favourite policy push: the internationalisation of the rupee.

The measures span three fronts: (i) allowing Indian banks to lend in rupees to residents of Bhutan, Nepal, and Sri Lanka, (ii) expanding currency reference rates published by Financial Benchmarks India Limited, and (iii) widening investment avenues for Special Rupee Vostro Accounts to include corporate bonds and commercial paper. Each is framed as deepening rupee use in cross-border trade and finance. 

Each deserves polite applause. Yet, one would expect these to be more transformative than symbolic. But then, central banks rarely announce revolutions. They prefer nudges, i.e., tweaks in regulation, new benchmarks, and incremental changes that keep a long-term story alive.

Regional, Not Global
Permitting Indian banks to lend in rupees to neighbours looks like a step toward globalisation, but the scope is tiny. Nepal and Bhutan already operate under close rupee linkages, while Sri Lanka, still reeling from a crisis, is unlikely to generate significant rupee demand.

This is less internationalisation than neighbourhood facilitation. For the rupee to become a true global currency, larger trading partners — for instance, Gulf oil exporters, African commodity suppliers, ASEAN hubs — must routinely transact and borrow in the Indian rupee. Until then, lending to small neighbours is best read as signalling intent, not a market breakthrough.

Reference Rates
The plumbing is fine, but flow has to manifest.

The expansion of FBIL’s reference rates to cover currencies of major trading partners seems technical but matters for market structure. Benchmarks help reduce disputes, ease settlement, and provide anchors for derivatives pricing. In theory, if INR–CNY or INR–AED benchmarks exist, banks can quote directly instead of triangulating through USD.

But plumbing alone cannot create liquidity. Without strong demand for trade invoicing in rupees, liquidity outside USD–INR will remain thin. Unless exporters and importers embrace rupee invoicing — something policy has been relentlessly pushing for — the new benchmarks may end up as pipes without much flow. Still, this is a necessary enabler, preparing infrastructure in case demand builds.

SRVA Investments
Allowing SRVA balances to be invested in corporate bonds and commercial paper is the most ambitious announcement. It extends rupee-denominated investment beyond government securities and signals India’s willingness to deepen its financial markets.

Here too, the scale must be weighed against ambition. SRVA balances remain modest, with Russia the main user post-sanctions. India’s corporate bond market is still shallow, secondary liquidity is thin, and credit risk will deter cautious investors. Unlike government securities, corporate bonds and CPs lack the comfort of sovereign backing.

The step is therefore more about ambition than immediate impact. It tells markets that rupee assets can be broader than sovereign paper, but flows will remain small until trade invoicing in INR expands meaningfully.

Taken together, these initiatives reinforce RBI’s long-term vision. They are considered safe and incremental, avoiding the risks of sudden capital account liberalisation. They also keep the rupee-internationalisation narrative alive, which is valuable in itself.

But investors should not mistake narrative for scale. Lending to tiny neighbours will not internationalise the rupee. New reference rates cannot by themselves create liquidity. SRVA investments will not transform India’s bond market unless underlying rupee trade grows sharply. These are nudges, not leaps. But then the beginning of everything is small.

The RBI deserves credit for persistence. It is laying pipes, opening doors, and nudging markets. But outcomes will remain modest until India confronts bigger questions: capital account openness, market depth, and willingness to tolerate a more freely floating rupee.

For now, the message is clear. The RBI is serious about the direction of travel, but investors should moderate expectations on distance covered. Baby steps deserve applause, if not a standing ovation.

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