India sees rupee bonds as next step in deepening Lanka ties

• Indian Deputy High Commissioner to SL Dr. Pandey described the initiative as a “long-term vision” that reflects the “deepening trust” between the two markets
• Says enabling Sri Lankan businesses and financial institutions to issue INR bonds would help diversify their funding sources

By Nishel Fernando

Dr. Satyanjal Pandey - Pic by Pradeep Dilruckshana

In a significant signal of deepening economic ties, India is actively considering pathways to enable Sri Lankan entities, including the government and commercial businesses, to issue bonds denominated in Indian Rupees (INR), according to remarks by the Indian Deputy High Commissioner to Sri Lanka Dr. Satyanjal Pandey.

Speaking as the Guest of Honour at the ‘Bridging Borders II’ financial dialogue in Colombo on October 15, Dr. Pandey described the initiative as a “long-term vision” that reflects the “deepening trust” between the two markets.

The dialogue, organised by the Indo–Sri Lanka Chamber of Commerce & Industry (ISCCI), focused on creating a roadmap for Sri Lanka to issue bonds in Indian currency, a move that could enhance regional financial integration and trade liquidity.

Dr. Pandey suggested that enabling Sri Lankan businesses and financial institutions to issue INR bonds would help diversify their funding sources, reduce exposure to exchange rate volatility, and attract investors familiar with Indian markets.

While being optimistic, he acknowledged the “steep regulatory challenges” that need to be addressed on India’s side, citing key hurdles such as potential vulnerability of the rupee to volatility, the lack of full capital account convertibility, and existing guidelines on external commercial borrowings.

“These challenges must not resist us from academically revisiting policy reformation,” he said, urging policymakers not to be deterred.

The envoy proposed that Indian regulators explore reforms to permit INR bond financing for infrastructure and sustainable projects in neighbouring countries — a shift from current rules that largely restrict such financing within India.

“We need to relook at the regulatory reformation to allow INR bond financing for the purposes of infrastructure and sustainable projects in the friendly countries in addition to India,” Dr. Pandey stated.

He outlined several practical avenues for Sri Lanka to tap into Indian capital markets, pointing to India’s GIFT City platform as a viable model. DFCC Bank has already raised US$ 8 million for clean and green projects through it, he noted.

“Future bond issues could be planned on similar lines to be issued in INR and listed in (a) stock exchange in India and Sri Lanka,” he suggested.

Beyond commercial bonds, Dr. Pandey said India is ready to engage in discussions with Sri Lanka on providing INR-denominated loans for development partnerships and investment financing, as an alternative to traditional US dollar loans.

This aligns with broader efforts to promote local currencies, including the 2023 Reserve Bank of India guidelines for trade settlement in INR between the two nations and the recent rollout of India’s Unified Payments Interface (UPI) in Sri Lanka.

The push for deeper financial cooperation comes as Sri Lanka’s economy shows signs of recovery. Dr. Pandey commended the country’s “steady progress towards fiscal discipline,” noting that the successful debt restructuring with private bondholders and recent rating upgrades have sent “very encouraging signals to the market worldwide.”

He called for an integrated approach, urging for the swift conclusion of the Economic and Technology Cooperation Agreement (ETCA) to complement these financial mechanisms.

“Let us approach this initiative not as an isolated financial experiment, but as part of a shared aspiration to make South Asia a zone of stability, innovation, and confidence,” he said.

The ISCCI-hosted dialogue brought together senior policymakers and financial experts from both countries to explore these possibilities.