State Bank of India is planning to introduce Indian rupee-denominated deposits in Sri Lanka, to encourage wider use of the currency in trade and investment between the neighboring nations.
Understand what this means?
State Bank of India (SBI) plans to offer Indian Rupee (INR)-denominated deposit accounts through its branches in Sri Lanka. This means individuals and businesses in Sri Lanka will be able to keep their money in Indian Rupees instead of converting it into Sri Lankan Rupees or US Dollars.
The proposed deposit scheme will particularly benefit Sri Lankan exporters who receive payments from Indian importers in Indian Rupees. Instead of immediately converting the money into another currency, exporters will be able to deposit the rupees in SBI accounts and earn interest. This will provide them with an additional financial benefit while facilitating smoother trade transactions with India.
It will also boost international usage of Indian Rupee. India has been actively promoting the use of the Rupee in international trade as part of its broader strategy to increase the global acceptance of the currency. The introduction of rupee deposits in Sri Lanka is expected to strengthen the role of the Indian currency in a bilateral trade relationship worth more than $6 billion annually. Greater use of the Rupee can reduce dependence on foreign currencies such as the US Dollar.
Example of How the Rupee Deposit Scheme Will Work
For example, a Sri Lankan tea exporter sells tea worth ₹10 lakh to an Indian company and receives payment in Indian Rupees. Under the current system, the exporter may have to convert the Rupees into US Dollars or Sri Lankan Rupees, which involves currency conversion charges and exchange rate risks.
However, under SBI’s proposed rupee deposit scheme, the exporter can directly deposit the ₹10 lakh in an SBI account in Sri Lanka and earn interest on the amount. The exporter can later use these Rupees to purchase goods from India or convert them into local currency when needed.
This will help businesses save on transaction costs, reduce dependence on the US Dollar, and make trade between India and Sri Lanka more efficient.
| Benefits for India | Benefits for Sri Lanka |
|---|---|
| Increases international use of the Indian Rupee. | Provides an additional currency option for trade with India. |
| Reduces dependence on the US Dollar in cross-border transactions. | Allows exporters to hold and earn interest on Indian Rupee deposits. |
| Strengthens India’s position in global trade and finance. | Reduces currency conversion costs and exchange rate risks. |
| Supports RBI’s efforts to internationalize the Rupee. | Makes trade transactions with India faster and more efficient. |
| Lowers transaction costs for Indian importers and exporters. | Improves access to the large Indian market through easier payment settlements. |
| Enhances bilateral trade and economic cooperation with Sri Lanka. | Facilitates smoother trade and investment flows between the two countries. |
| Reduces demand for foreign exchange reserves used in trade settlements. | Offers greater flexibility in managing trade receipts received from Indian buyers. |
What SBI said?
The deposits, which will be offered through SBI’s branches in Sri Lanka, will allow exporters to earn interest on the currency they get from Indian traders, Rizwan Alam, general manager for retail and subsidiaries at SBI’s International Banking Group, told a business forum in Colombo Monday.
India has been promoting the use of the rupee in international trade as part of efforts to expand the currency’s role beyond its borders. The latest initiative by SBI could help deepen the use of the Indian currency in a trade relationship worth more than $6 billion annually.
The Reserve Bank of India has unveiled steps to enhance international acceptance of the rupee like introducing more reference rates. For investors and businesses, greater adoption of the rupee will reduce reliance on the US dollar and lower transaction costs.
Using the Indian rupee to both denominate and settle cross-border trade can reduce transaction costs.
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