India has started to expand the trading of Indian currency at the regional level. In order to implement the policy of the Government of India, the Reserve Bank of India (RBI), the central bank of India, has arranged that for commercial purposes, individuals, companies and banks and financial institutions from the neighboring countries of Nepal, Bhutan and Sri Lanka can be given loans in Indian currency for international trade related work.

India has already provided such facilities to Bhutan and Sri Lanka, but now Nepal has also been included in that list. Various Indian media, including Reuters, have mentioned that last Wednesday, RBI announced that businessmen from Bhutan, Nepal and Sri Lanka will get business loans in order to introduce Indian currency in international transactions.

It has been mentioned in the media that in the foreign exchange management regulations revised by the RBI, the limit of loan facility given to Bhutan and Sri Lanka will be increased and that facility will also be given to Nepal. However, till Monday, the RBI has not published the regulation.

After the implementation of the new system, the industrialists, companies and banks and financial institutions will get loans through Indian banks (authorized banks) or their branches in Nepal. Nothing has been revealed yet about how to take the loan, its process, interest rate, insurance etc. Head of Foreign Exchange Management Department of Nepal Rastra Bank Revati Prasad Nepal said that India wants to expand its currency transactions by adding Nepal to the list as it has been lending to Bhutan and Sri Lanka before.

It seems that India wants to expand its investment abroad in Mudra Bharu. India has been providing such facilities to Bhutan and Sri Lanka before. Now Nepal has also been included," said Nepal. He said that since India could not provide information on this matter, the National Bank has not thought about any discussion or policy arrangement on the matter.

"After getting some information formally from the official body, the National Bank will also discuss it and make policy arrangements," he said, "Not only Nepali banks and financial institutions, but also industrialists need permission from the National Bank to take loans from India." Therefore, before making policy arrangements for that, we study the basic information and facts in this regard.' Nepal says that even though such a loan is not needed when there is sufficient liquidity and low interest rates in Nepal like now, it can be useful for the opposite situation.

Another way to get a loan from abroad has been opened. Entrepreneurs benefit. Don't do it now, because now India's interest rate is 2 percentage points more expensive than Nepal's on deposits and loans," said Nepal, "Nepal's exchange rate with Indian currency is less stable. If it was the currency of other countries, the issue of hedging would also come up. However, insurance may come up. On the whole, only one way of foreign loans has been opened.

Banks in Nepal cannot take loans directly from abroad and for that they have to get the permission of Rashtra Bank first. Therefore, a former deputy governor of Nepal Rastra Bank says that India should not take what it gives. Because even now we can get such kind of loans from America, Singapore, Hong Kong and other countries. India is also going to provide similar facilities. National Bank should not give permission for that facility if India has given it," he said. Nepal's argument is that

should not be allowed for two reasons. First, bringing in more liquidity from India, when liquidity is sufficient now, theoretically creates a problem. Because borrowing in foreign currency carries the burden of exchange risk around the world. But since the exchange rate of Nepali currency is fixed with Indian currency, there is no exchange risk. Now that they don't have to bear the exchange risk, if it becomes much cheaper than Nepal, people will take loans from there. This creates distortions in the banking system of Nepal. Unhealthy competition.

For example, the loan interest rate in Nepal is 11 percent and in India it is only 8 percent, so those who can afford it take loans from there. In such a situation, he says, the objective of monetary policy to maintain financial stability and keep interest rates within desired limits will fail.

India's latest decision to extend credit to neighboring countries is part of India's currency internationalization, i.e. increasing the use of the Indian rupee in trade outside India, aiming to reduce dependence on foreign currencies (such as the dollar), Business Standard media reported. Even if India wants to extend credit to Nepal in Indian currency, Nepali individuals and institutions have to get the approval of the National Bank to take that loan.