Indians Banks Open Loans for Nepalis: Easier Credit May Boost Imports, Threaten Domestic Banks

KATHMANDU: Nepali citizens can now obtain loans directly from Indian banks after the Reserve Bank of India (RBI) announced new provisions allowing residents of Nepal, Bhutan, and Sri Lanka to access credit in Indian rupees through Indian banks and their foreign branches.

RBI Governor Sanjay Malhotra introduced the policy aiming to reduce dependence on the U.S. dollar and facilitate cross-border trade settlements within South Asia. According to the new rule, Indian banks will be able to extend loans to individuals and businesses from the three neighboring countries in Indian rupees, with necessary amendments to foreign exchange management laws underway.

The decision, part of India’s broader regional financial integration strategy, is designed to strengthen the Indian rupee’s international role, reduce transaction costs, and boost trade efficiency among South Asian economies.

Nepali businesspersons seeking loans will need to open Nostro accounts in Indian banks. While most Nepali banks already maintain such accounts for trade purposes, individuals and companies will now be able to do so directly.

Economic Implications for Nepal

Nepal’s trade is overwhelmingly dependent on India — accounting for nearly 80% of its total imports. In the fiscal year 2081/82, Nepal imported goods and services worth Rs 10.71 trillion from India but exported only Rs 2.24 trillion, creating a massive trade deficit of Rs 8.46 trillion.

Economists say the new Indian lending policy could make imports easier and cheaper, potentially widening Nepal’s trade deficit. Former banker Parshuram Kuwar Kshetri said the move may reduce Nepal’s dependence on the dollar but warned that it would not necessarily mean an “influx of money” into Nepal.

“This should be viewed positively in terms of trade facilitation, but it won’t bring a wave of liquidity. Indian banks may not easily extend loans to Nepali businesses,” Kshetri noted.

However, others, like former Nepal Bankers’ Association President Bhuvan Dahal, believe it could help small and medium entrepreneurs access easier credit, particularly when Nepali banks face liquidity constraints.

Concerns Over Domestic Impact

Former Executive Director of Nepal Rastra Bank (NRB), Narbahadur Thapa, warned that the policy could increase imports, strengthen India’s economy, and weaken Nepal’s financial independence. “If Nepali businesses can borrow easily from Indian banks, imports will rise, and our economy may become even more reliant on India,” he said.

He added that as businesses turn to Indian banks for cheaper loans, Nepali banks could face a decline in lending demand, putting them “at risk of losing business.” Thapa also cautioned that greater dependence on Indian loans might weaken the Nepali rupee and reduce foreign currency reserves, particularly in dollars, as imports rise faster than remittance and tourism inflows.

Deputy Governor Bam Bahadur Mishra confirmed that NRB has received official communication about the RBI’s decision and is studying its potential impacts before formulating a policy response.

“We are assessing the implications and will take an appropriate decision soon,” Mishra said, adding that Nepali businesses already conduct trade settlements in Indian rupees, and the new measure might not bring immediate disruptions.

Experts emphasize that the long-term impact will depend on how Nepal Rastra Bank regulates cross-border lending, determines loan limits, and manages foreign exchange exposure.