SBI To Launch Rupee Deposits In Sri Lanka To Boost Bilateral Trade

State Bank of India (SBI) is planning to make deposits denominated in Indian rupees available through its branches in Sri Lanka as a step to promote increased usage of the Indian currency in trade and investment between the two neighbouring countries.

These deposits will allow Sri Lankan exporters (and other businesses that receive payments from Indian buyers) to keep their money in rupees and earn interest on these balances. The move is anticipated to help a bilateral trade relationship of over US$6 billion per year and, at the same time, decrease reliance on the US dollar for trade settlements.

How Will Trade Between India And Sri Lanka Benefit?

Currently, the US dollar is the main currency in which the majority of global trade is carried out. This leads to additional costs for currency exchange and also exposes companies to risks due to changes in foreign exchange rates. But if transactions between two countries were permitted to be settled in Indian rupees, companies on both sides would benefit from reduced transaction costs and a simplified payment system.

Besides, exporters who receive payments in rupees from customers in India will be able to keep these funds and earn interest on them instead of converting the amount to another currency on the spot. This step is part of the plan, which was actively pushed forward after the Reserve Bank of India introduced the framework for major trade settlement in rupees in 2022.

Why Is India Pushing For Wider Global Use Of The Rupee?

The RBI had recently announced a series of reforms and changes to facilitate the internationalisation of the rupee, such as the addition of multiple reference rates and the enhancement of the infrastructure for cross-border rupee transactions.

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If more countries use the rupee, it will help India reduce its dependence on the US dollar for international trade, cut transaction costs for businesses and be better protected against the fluctuations of global currencies. Besides, it will make the Indian economy more powerful in the region by getting the neighbouring countries to use the rupee for their trade settlements.

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