RBI Annual Report FY 2025-26 explains FEMA reforms, LRS, INR internationalisation, SRVAs, cross-border trade, ECB reforms and forex-management measures.

The RBI Annual Report FY 2025-26 shows that foreign exchange management during the year was not merely about managing the rupee-dollar exchange rate. The Reserve Bank’s Foreign Exchange Department (FED) focused on simplifying FEMA regulations, reducing compliance burdens, facilitating external trade, expanding the use of the Indian Rupee (INR) in cross-border transactions and rationalising external borrowing and investment frameworks. For RBI Grade B Promotion Exam, Grade B, UPSC, banking examinations and interviews, this chapter is particularly important because it combines FEMA, external-sector regulation, INR internationalisation and practical policy reforms in one place.

1. Role of the Foreign Exchange Department (FED)

The starting point is the statutory mandate.

Under the framework of the Foreign Exchange Management Act, 1999 (FEMA), the Foreign Exchange Department’s mandate is to:

Facilitate external trade and payments, and
Promote the orderly development and maintenance of the foreign exchange market in India.

This gives us the basic policy philosophy:

Facilitation + orderly development + orderly forex market

Therefore, RBI’s foreign exchange regulation is not intended simply to restrict foreign exchange transactions. The direction is increasingly towards facilitating legitimate transactions while maintaining appropriate safeguards.

2. FED’s Major Agenda for 2025-26

The FED identified several major regulatory areas for review during 2025-26.

Major objectives included:

Area	Broad objective
FEMA Guarantees Regulations	Rationalisation
Liberalised Remittance Scheme	Reduce compliance burden
INR borrowing/lending	Consolidation and rationalisation
Authorised Persons framework	Simplification
Non-Debt Instruments Rules	Principle-based framework
Insurance Regulations	Review
Deposit Regulations	Review
Branch/Liaison/Project Offices	Simplification

The common theme is important: simplification without compromising regulatory safeguards.

3. FEMA (Guarantees) Regulations, 2026

One of the concrete reforms was the notification of the Foreign Exchange Management (Guarantees) Regulations, 2026 on January 10, 2026.

The reviewed framework expanded the universe of guarantees permitted under the automatic route.

Earlier, the framework did not contain enabling provisions for guarantees issued by non-resident entities. After the review, the framework allows guarantee transactions subject to important conditions.

The underlying transaction:

should not be prohibited under FEMA, 1999; and
where the residential status of the debtor and surety differs, the parties must satisfy the applicable lender/borrower eligibility under the prevailing borrowing and lending framework.

Another important change was the introduction of comprehensive quarterly reporting for all guarantees, including guarantees that are:

issued,
modified, or
invoked.

Exam Point

Remember:

FEMA Guarantees Regulations, 2026 → notified January 10, 2026 → expanded automatic-route guarantee framework + quarterly reporting.

4. Liberalised Remittance Scheme (LRS): Compliance Rationalisation

The Liberalised Remittance Scheme (LRS) was another area under review.

The objective was to rationalise the guidelines and reduce compliance burden for current-account remittances.

The review covered issues such as:

permitted purposes,
mode of payment,
currency of payment, and
declaration requirements.

Importantly, the Annual Report states that the review process was still underway.

Why is this important?

LRS affects individuals making permitted remittances outside India. Therefore, rationalisation of LRS is essentially about balancing:

Ease of legitimate outward remittances ↔ regulatory oversight

Do not write in an exam that the entire LRS framework was already finalised during FY 2025-26. The report specifically says the review was underway.

5. INR Borrowing and Lending: FEMA 3R

A major structural reform involved the consolidation of directions relating to borrowing and lending transactions in Indian Rupees.

RBI decided to consolidate these directions into:

Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 — FEMA 3R

rather than keeping them within the Master Direction on External Commercial Borrowings, Trade Credit and Structured Obligations.

Rationalised provisions concerning borrowing in INR by persons resident in India (PRIs) from persons resident outside India (PROIs) were consolidated through an amendment to FEMA 3R notified on February 16, 2026.

However, provisions relating to lending in INR were still under review at the time covered by the report.

Exam Trap

Do not confuse:

borrowing provisions → consolidated/amended;
lending provisions → still under review.

6. Simplification of the Authorisation Framework

RBI also worked on rationalising and simplifying the framework governing authorised persons under FEMA.

The objectives were:

improve availability of forex services;
increase operational efficiency;
maintain appropriate safeguards;
bridge regulatory gaps; and
improve ease of doing business.

The Annual Report also contains a footnote stating that the FEM (Authorised Persons) Regulations, 2026 were notified on May 6, 2026. Since this notification falls after March 31, 2026, it should be treated as a post-year-end development mentioned in the Annual Report, rather than a FY 2025-26 implementation event.

7. Non-Debt Instruments Rules, 2019: Moving Towards a Principle-Based Framework

RBI reviewed the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019.

The review sought to:

make procedures more principle-based;
ensure uniform applicability across investee entities;
avoid overlap with existing domestic laws; and
clearly distinguish foreign investment rules from FDI Policy.

The revised rules were submitted to the Government of India in November 2025 for consideration.

Core takeaway

The direction is away from unnecessarily fragmented procedural regulation and towards a:

Principle-based + uniform + clearly delineated regulatory framework.

8. Insurance, Deposits and Foreign Currency Accounts

The review agenda also extended to other FEMA regulations.

Insurance

The existing FEMA Insurance Regulations, 2015 were under internal review based on stakeholder comments.

Deposits

RBI simultaneously reviewed:

FEMA regulations governing deposits; and
FEMA regulations governing foreign currency accounts maintained by persons resident in India.

The revised regulations were under consideration for approval.

Branch/Liaison/Project Offices

The framework governing the establishment in India of:

Branch Offices (BO),
Liaison Offices (LO),
Project Offices (PO), and
other places of business

was comprehensively reviewed.

The proposed framework was described as principle-driven, with:

greater delegation of powers to Authorised Dealer banks;
lower compliance burden; and
enhanced ease of doing business.

The revised draft was published in October 2025 for public feedback and subsequently awaited Government of India concurrence.

9. The Big Theme: Internationalisation of the Indian Rupee

This is arguably the most exam-worthy portion of Part 14.

The RBI Annual Report states that the Reserve Bank has undertaken several measures to enhance the role of the INR as an international currency, including greater use of INR for current-account and select capital-account transactions.

Why does INR internationalisation matter?

The Annual Report identifies several potential benefits of increasing the use of INR as an invoicing and settlement currency:

Protection against exchange-rate risk.
Lower need to maintain costly forex reserves in convertible currencies.
Development of bilateral exchange-rate markets.
Lower transaction costs in foreign-exchange transactions.

In simple terms:

More INR-based international trade → less dependence on third-country currencies for eligible transactions → deeper INR markets → potentially lower transaction costs and exchange-rate exposure.

10. Special Rupee Vostro Accounts — SRVAs

A central instrument for INR internationalisation is the Special Rupee Vostro Account (SRVA).

The framework allows correspondent banks in partner countries to open SRVAs with Authorised Dealer Category-I banks in India.

The broader strategy also includes:

local currency arrangements;
INR-denominated accounts for non-residents;
transfer of funds between repatriable Rupee accounts; and
use of SRVA balances for permitted foreign investment into India.

Important figures

As of May 2026:

Local Currency Arrangements (LCAs) had been entered into with four jurisdictions:
- UAE
- Indonesia
- Maldives
- Mauritius
SRVAs had been opened by correspondent banks in 35 partner countries.

Again, May 2026 is after the financial year-end, but the Annual Report uses this information in explaining the evolution of INR internationalisation.

11. INR Invoicing and Settlement: The Numbers You Must Remember

INR-based invoicing and settlement has picked up considerably since July 2022.

Between August 2022 and July 2025, the CAGR of:

imports invoiced in INR = 20.9%
exports invoiced in INR = 12.7%

During 2025-26, year-on-year growth was:

Indicator	YoY growth
Export invoicing in INR	6.5%
Import invoicing in INR	9.5%
Export settlement in INR	2.7%
Import settlement in INR	41.2%

The 41.2% growth in import settlement is particularly notable.

12. INR Invoicing: FY 2025-26 Data

The Annual Report provides actual values as well as INR’s percentage share.

India’s Trade Invoiced in INR

₹ crore	2023-24	2024-25	2025-26
Imports	1,94,162 (3.7%)	2,59,940 (4.5%)	2,84,688 (4.7%)
Exports	2,86,794 (5.9%)	3,07,281 (5.9%)	3,27,370 (6.2%)

Thus, in FY 2025-26:

4.7% of imports were invoiced in INR;
6.2% of exports were invoiced in INR.

Exam Point: INR invoicing share in 2025-26 = 4.7% imports and 6.2% exports.

13. INR Settlement: Another Important Dataset

The settlement numbers are different from invoicing numbers.

India’s Trade Settled in INR

₹ crore	2023-24	2024-25	2025-26
Imports	99,680 (1.8%)	1,13,088 (1.9%)	1,59,691 (2.5%)
Exports	1,75,086 (3.6%)	1,67,448 (3.2%)	1,71,916 (3.0%)

Do not mix up these figures

INR invoicing:

Imports: ₹2,84,688 crore
Exports: ₹3,27,370 crore

INR settlement:

Imports: ₹1,59,691 crore
Exports: ₹1,71,916 crore

This distinction can easily become a statement-based examination question.

14. More Flexibility for SRVA Balances

The RBI also expanded the usefulness of SRVA balances.

Measures included:

allowing surplus SRVA balances to be deployed in eligible corporate debt; and
allowing AD banks to lend INR to non-residents in Nepal, Bhutan and Sri Lanka, including banks in those jurisdictions, for trade transactions.

The underlying objective is clear:

If foreign counterparties accumulate INR, there must be useful avenues to deploy that INR.

That makes the internationalisation framework more sustainable.

15. SRVA Opening Process Simplified

In August 2025, AD banks were permitted to open SRVAs of overseas correspondent banks without referring to the Reserve Bank for approval.

This was intended to rationalise the process and encourage greater use of SRVAs.

This is an excellent example of the broader regulatory philosophy of FY 2025-26:

Enable → delegate → simplify → retain safeguards.

16. INR Lending to Nepal, Bhutan and Sri Lanka

From October 2025, AD banks were permitted to lend INR to persons resident in:

Bhutan,
Nepal, and
Sri Lanka,

including banks in these jurisdictions, for cross-border trade transactions.

The measure was intended to provide INR liquidity/resources to non-residents and reduce dependence on:

inter-central-bank local-currency swaps;
inter-governmental lines of credit; or
special permissions for lines of credit from Indian AD banks.

Why this matters

INR internationalisation cannot succeed merely by allowing foreign parties to hold INR.

They must also have mechanisms to:

obtain INR → use INR → settle trade → deploy INR balances.

This measure addresses that ecosystem.

17. Bharat Mart: Easier Export Realisation

From April 2025, exporters were enabled to realise and repatriate full export proceeds for goods exported to Bharat Mart in the UAE within nine months from the date of sale of goods from the warehouse.

They were also allowed, subject to reasonableness and without preconditions, to:

open/hire warehouses; and
remit funds for initial and recurring operating expenses for their offices.

This is another example of FEMA being adapted to newer international trade and distribution models.

18. Advance Remittance for Shipping Vessels

From June 2025, importers were permitted to make advance remittances for importing shipping vessels:

without a bank guarantee; or
without an unconditional, irrevocable standby letter of credit,

up to US$50 million, subject to specified conditions.

Exam Number

US$50 million → advance remittance for import of shipping vessels.

19. Foreign Currency Accounts of Indian Exporters

From October 2025, Indian exporters were permitted to repatriate unutilised funds from foreign currency accounts maintained with banks outside India after adjusting for forward commitments.

The time limits were:

IFSC accounts: within 3 months;
other jurisdictions: by the next month.

This provides exporters greater flexibility in managing foreign currency receipts and commitments.

20. Merchanting Trade: Forex Outlay Period Increased

In October 2025, RBI increased the permitted time period for the outlay of foreign exchange for merchanting trade transactions from:

4 months → 6 months

This was intended to help merchanting traders manage their transactions more efficiently.

Easy memory

Merchanting trade: 4 → 6 months

21. EDPMS and IDPMS: Small-Value Transactions

RBI also tried to reduce compliance friction in export-import reporting.

In October 2025, AD banks were advised to reconcile and close entries in:

EDPMS — Export Data Processing and Monitoring System
IDPMS — Import Data Processing and Monitoring System

for entries up to ₹10 lakh per entry/bill, based on declarations from exporters/importers.

AD banks were also advised to:

accept certain reductions in declared/invoice value based on declaration;
review charges for small-value export/import transactions; and
not levy penal charges for delays in adherence to regulatory guidelines.

Exam Point

EDPMS/IDPMS small-value reconciliation threshold = ₹10 lakh.

22. Export Realisation Period Extended: 9 Months to 15 Months

This is one of the most important numerical changes.

In November 2025, the time period for realisation and repatriation of the full export value of goods, software and services exported from India was increased from:

9 months → 15 months

The rationale was to help exporters deal with global headwinds affecting their businesses.

The permitted period for shipment of goods against advance payment was also increased:

1 year → 3 years

from the date of receipt of advance payment, or as per agreement, whichever was later.

Must Remember

Export realisation: 9 → 15 months
Shipment against advance: 1 → 3 years

These are high-probability factual questions.

23. Currency Movement Between India, Nepal and Bhutan

In December 2025, RBI streamlined the export/import of currency framework.

A person who is not a citizen of Pakistan or Bangladesh was permitted to:

take/send Indian Government and RBI currency notes to Nepal or Bhutan, and
bring such notes into India from Nepal or Bhutan,

for any amount in denominations up to ₹100.

For denominations above ₹100, the permitted amount was subject to a total limit of:

₹25,000.

24. New Export and Import of Goods and Services Regulations

The Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026 were published in the Official Gazette in January 2026.

The new regulations are:

primarily principle-based;
applicable to both goods and services trade; and
intended to promote ease of doing business, especially for small exporters and importers.

However, there is a crucial date:

Effective from October 1, 2026.

Exam Trap

Published in January 2026 does not mean effective in January 2026.

Effective date = October 1, 2026.

25. ECB Framework Comprehensively Rationalised

The External Commercial Borrowing (ECB) framework was comprehensively rationalised through an amendment in February 2026.

Major changes included:

1. Wider borrower/lender base

The eligible borrower and recognised lender base was expanded to increase opportunities for credit flow.

2. Borrowing limit linked to financial strength

Borrowing limits were linked to the financial strength of the borrower.

3. End-use restrictions liberalised

Restrictions concerning end-use were liberalised.

4. Minimum average maturity requirements liberalised

The framework provided greater flexibility regarding minimum average maturity requirements.

5. Market-determined interest rates

ECB borrowing at market-determined interest rates was enabled.

6. Reporting simplified

Reporting requirements were simplified to reduce compliance obligations.

ECB Reform — One-Line Revision

February 2026 ECB reform = wider eligibility + financial-strength-based borrowing + liberalised end-use/MAMP + market rates + simpler reporting.

26. What Was the Broader Strategy Behind These Reforms?

The reforms may look like a collection of unrelated FEMA amendments. They are not.

There is a consistent policy direction.

A. Make FEMA more principle-based

Several regulatory reviews aimed to reduce procedural complexity and create clearer rules.

B. Reduce compliance burden

Examples include:

LRS review;
EDPMS/IDPMS small-value closure;
simplified authorisation;
simplified ECB reporting.

C. Delegate more to AD banks

The revised frameworks increasingly give operational responsibility to Authorised Dealer banks while retaining RBI oversight.

D. Facilitate external trade

Examples:

Bharat Mart;
shipping-vessel advance remittance;
merchanting trade flexibility;
longer export realisation period.

E. Internationalise the INR

Examples:

SRVAs;
LCAs;
INR invoicing;
INR settlement;
INR lending to neighbouring countries;
deployment of SRVA balances.

This is the central narrative of RBI Annual Report FY 2025-26 in the foreign-exchange-management area.

27. 2026-27 Agenda of the Foreign Exchange Department

The reform process is not complete.

For 2026-27, FED identified several areas for further work:

Rationalisation of Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019.
Review of Foreign Currency Accounts by a Person Resident in India Regulations, 2015.
Review of Deposits Regulations, 2016.
Review of Insurance Regulations, 2015.
Rationalisation of FEMA Non-Debt Instruments Rules, 2019.
Review of regulations concerning BO/LO/PO establishments.
Review of Foreign Exchange (Compounding Proceedings) Rules, 2024.

Thus, the FY 2025-26 reforms should be viewed as part of a multi-year rationalisation programme rather than a one-time exercise.

28. The RBI’s Forex Philosophy in One Framework

You can remember the entire chapter through this sequence:

FEMA → Facilitate Trade → Simplify Regulation → Delegate to AD Banks → Expand INR Usage → Strengthen Cross-Border Settlement → Maintain Orderly Forex Markets

The RBI’s conclusion for 2025-26 captures this approach: the Reserve Bank continued to develop and deepen financial markets while rationalising external-sector regulations, increasing ease of doing business and encouraging adoption of INR for cross-border transactions. Forex operations were to remain principle-based and guided by the objective of ensuring orderly movements in the INR exchange rate.

29. High-Value Numbers for RBI Grade B & Promotion Exam

Topic	Number/Change
FEMA Guarantees Regulations notified	10 Jan 2026
SRVA partner countries	35 as of May 2026
LCA jurisdictions	4
INR import invoicing, 2025-26	₹2,84,688 crore / 4.7%
INR export invoicing, 2025-26	₹3,27,370 crore / 6.2%
INR import settlement, 2025-26	₹1,59,691 crore / 2.5%
INR export settlement, 2025-26	₹1,71,916 crore / 3.0%
Import invoicing CAGR, Aug 2022–Jul 2025	20.9%
Export invoicing CAGR, Aug 2022–Jul 2025	12.7%
Import settlement YoY growth	41.2%
Shipping-vessel advance remittance limit	US$50 million
EDPMS/IDPMS small-value threshold	₹10 lakh
Merchanting trade forex outlay	4 → 6 months
Export realisation period	9 → 15 months
Shipment against advance	1 → 3 years
Currency above ₹100 to/from Nepal/Bhutan	₹25,000
New Export/Import Regulations effective	1 Oct 2026

30. Exam Revision: What You Should Actually Memorise

Concept 1 — FED mandate

Facilitate external trade/payments + orderly development and maintenance of India’s forex market.

Concept 2 — FEMA reform philosophy

Principle-based regulation + ease of doing business + safeguards.

Concept 3 — FEMA Guarantees

2026 regulations notified on January 10, 2026.

Concept 4 — LRS

Review aimed at reducing compliance burden, particularly for current-account remittances.

Concept 5 — FEMA 3R

INR borrowing provisions consolidated through amendment notified February 16, 2026.

Concept 6 — INR internationalisation

SRVA + LCA + INR accounts + INR invoicing/settlement + permitted investment/deployment of INR balances.

Concept 7 — SRVA

35 partner countries had SRVAs as of May 2026.

Concept 8 — INR invoicing

2025-26:

Imports 4.7%
Exports 6.2%

Concept 9 — INR settlement

2025-26:

Imports 2.5%
Exports 3.0%

Concept 10 — Export realisation

9 months → 15 months

Concept 11 — Merchanting trade

4 months → 6 months

Concept 12 — EDPMS/IDPMS

Small-value entries up to ₹10 lakh could be reconciled/closed based on declaration.

Concept 13 — ECB

Wider eligibility + liberalised end-use/maturity + market-determined interest + simplified reporting.

Concept 14 — New export/import regulations

Published January 2026 but effective October 1, 2026.

31. Most Probable Exam Questions

Q1. What is the mandate of RBI’s Foreign Exchange Department under FEMA?

Answer: To facilitate external trade and payments and promote the orderly development and maintenance of India’s foreign exchange market.

Q2. When were the FEMA (Guarantees) Regulations, 2026 notified?

Answer: January 10, 2026.

Q3. What was the key objective of the LRS review?

Answer: Rationalisation and reduction of compliance burden, particularly for current-account remittances.

Q4. What is FEMA 3R?

Answer: Foreign Exchange Management (Borrowing and Lending) Regulations, 2018.

Q5. What is the purpose of SRVAs?

Answer: They facilitate INR-based cross-border trade invoicing and settlement through accounts maintained by overseas correspondent banks with Indian AD banks.

Q6. What percentage of India’s exports were invoiced in INR in 2025-26?

Answer: 6.2%.

Q7. What percentage of imports were invoiced in INR?

Answer: 4.7%.

Q8. What happened to the export realisation period?

Answer: It was extended from 9 months to 15 months.

Q9. What happened to the merchanting trade forex outlay period?

Answer: It increased from 4 months to 6 months.

Q10. What was the EDPMS/IDPMS threshold?

Answer: ₹10 lakh per entry/bill.

Q11. What was the maximum advance remittance allowed for importing shipping vessels under the June 2025 measure?

Answer: US$50 million, subject to conditions.

Q12. When will the new Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026 take effect?

Answer: October 1, 2026.

Key Takeaways

FED’s core mandate = facilitate external trade/payments + orderly forex market development.
FY 2025-26 saw extensive FEMA rationalisation.
FEMA Guarantees Regulations, 2026 were notified on January 10, 2026.
LRS review aimed at reducing compliance burden.
INR borrowing provisions were consolidated under FEMA 3R.
RBI moved towards principle-based external-sector regulation.
INR internationalisation was a major strategic theme.
SRVAs are a key mechanism for INR-based cross-border trade.
As of May 2026, SRVAs existed in 35 partner countries.
FY 2025-26 INR invoicing share = 4.7% imports and 6.2% exports.
INR settlement share = 2.5% imports and 3.0% exports.
Export realisation period increased 9 → 15 months.
Merchanting trade forex outlay period increased 4 → 6 months.
EDPMS/IDPMS small-value reconciliation threshold = ₹10 lakh.
ECB framework was substantially liberalised in February 2026.
New Export/Import Goods and Services Regulations, 2026 are effective October 1, 2026.
The overarching approach is ease of doing business + regulatory safeguards + greater INR usage.

Final One-Minute Revision

FED → FEMA → Facilitate trade → Orderly forex market

2025-26 reforms:

Guarantees → LRS → FEMA 3R → Authorised Persons → NDI Rules → Insurance → Deposits → BO/LO/PO

INR internationalisation:

SRVA + LCA + INR invoicing + INR settlement + INR liquidity + cross-border INR lending

Must-remember numbers:

35 SRVA countries
4 LCA jurisdictions
4.7% INR import invoicing
6.2% INR export invoicing
2.5% INR import settlement
3.0% INR export settlement
₹10 lakh EDPMS/IDPMS threshold
US$50 million shipping-vessel advance remittance
4 → 6 months merchanting trade
9 → 15 months export realisation
1 → 3 years shipment against advance
1 October 2026 new Export/Import Regulations effective

Part 14 complete.