The Reserve Bank of India has recommended that BRICS countries establish connections between their central bank digital currencies (CBDCs) to facilitate cross-border trade and tourism payments, according to two sources familiar with the proposal. This initiative could potentially reduce dependence on the US dollar amid escalating geopolitical tensions.

BRICS Summit Proposal

The RBI has suggested to the government that this CBDC linkage proposal be included on the agenda for the 2026 BRICS summit, which India will host. If accepted, this would mark the first time such a digital currency connection proposal has been formally presented to BRICS members, which include Brazil, Russia, India, China, and South Africa, among other newer additions.

Current CBDC Development Status

While none of the BRICS members have fully launched their digital currencies, all five main members are operating pilot projects. India's digital currency, the e-rupee, has demonstrated significant adoption since its launch.

The RBI has encouraged e-rupee adoption through several mechanisms including offline payment capabilities, programmability for government subsidy transfers, and partnerships with fintech firms for digital currency wallet services.

Implementation Challenges

Successful BRICS digital currency linkages would require addressing multiple complex elements. Key discussion topics include interoperable technology platforms, governance frameworks, and mechanisms to manage imbalanced trade volumes between member countries.

Sources indicate that member countries' reluctance to adopt technological platforms from other nations could delay implementation progress. Concrete advancement would necessitate consensus on both technological standards and regulatory frameworks.

To address potential trade imbalances, bilateral foreign exchange swap arrangements between central banks are being explored. Weekly or monthly transaction settlements through these swap mechanisms have been proposed as a potential solution.

Historical Context and Challenges

Previous attempts at alternative payment systems between BRICS members have encountered obstacles. Russia and India's efforts to increase trade in local currencies faced difficulties when Russia accumulated substantial Indian rupee balances with limited usage options, leading the RBI to permit investment of such balances in local bonds.

The BRICS organization, founded in 2009 by Brazil, Russia, India, and China, later expanded to include South Africa and has since added newer members including the United Arab Emirates, Iran, and Indonesia. Past initiatives to create major economic alternatives, such as a proposed common BRICS currency floated by Brazil, were subsequently abandoned.

Strategic Positioning

The RBI's proposal builds upon a 2025 BRICS summit declaration in Rio de Janeiro that emphasized interoperability between members' payment systems for enhanced cross-border transaction efficiency. The RBI has publicly expressed interest in connecting India's digital rupee with other nations' CBDCs to accelerate international transactions and expand the currency's global usage.

Despite these initiatives, the RBI maintains that efforts to promote the rupee's international use are not specifically aimed at promoting de-dollarization. The central bank continues positioning the e-rupee as a safer, more regulated alternative amid global concerns about stablecoin adoption and associated risks to monetary stability and banking intermediation.

The Reserve Bank of India has identified significant compliance deficiencies in priority sector lending at two major private banks, directing them to make substantial additional provisions following annual supervisory reviews. The regulatory action highlights ongoing scrutiny of agricultural loan classification practices across the banking sector.

Provision Requirements and Regulatory Directives

The central bank has mandated specific provision amounts for both institutions to address portfolio compliance gaps:

ICICI Bank faces the larger provision requirement, with the RBI identifying misclassification in the agriculture portfolio amounting to ₹20,000.00-25,000.00 crore. Some of these loans date back to 2012, indicating long-standing classification issues that have now come under regulatory scrutiny.

Scale of Finance Compliance Issues

The regulatory action centers on banks' adherence to the official scale of finance, which defines credit requirements for specific crops, land sizes, and regions. HDFC Bank Chief Financial Officer Srinivasan Vaidyanathan acknowledged the need for operational changes during an earnings call, stating the bank must "operate in a model that is acceptable to the regulator."

The scale of finance framework covers essential agricultural inputs including:

• Seeds and fertilizers
• Labor costs
• Irrigation requirements
• Regional crop-specific needs

Only lending within these prescribed limits qualifies as agricultural credit for priority sector lending purposes, which carries regulatory benefits such as priority sector status and lower risk weights.

Market Impact and Expert Analysis

Market participants emphasize that the additional provisioning reflects regulatory enforcement rather than underlying asset quality deterioration. Ashutosh Mishra, head of institutional equities research at Ashika Stock Broking, characterized the provisions as "effectively a punishment in the form of additional capital set aside" despite the absence of provisioning gaps.

Prakash Agarwal, partner at Gefion Capital, noted that the RBI has required a 5.00% provision on the affected exposures. These provisions stem from specific regulatory directives rather than existing norms and are expected to be reversed as the loans are recovered or run down.

Broader Regulatory Scrutiny

The RBI has intensified oversight of agricultural loan classification, particularly targeting borrowings partly used for non-farm purposes. Banks are now required to tighten classification standards by ensuring only credit meeting genuine farm requirements receives agricultural lending treatment.

ICICI Bank Executive Director Sandeep Batra explained that the bank must make standard asset provisions "in respect of a portfolio of agricultural priority sector credit facilities where the terms were found to be not fully compliant with regulatory requirements."

Historical Context and Future Outlook

Similar supervisory exercises have affected other major lenders, with Axis Bank undergoing comparable scrutiny during the June quarter of the previous year. That institution clarified the impact was largely technical in nature, confined to specific product categories including cash credit and overdraft facilities.

Both HDFC Bank and ICICI Bank have indicated plans to address documentation gaps and regulatory formalities to ensure proper loan classification in future cycles. The banks expect to rectify compliance issues to bring their portfolios in line with priority sector lending norms, potentially allowing for reclassification of affected loans as agricultural credit in subsequent regulatory reviews.