Two Bangladeshi banksincluding the largest state-owned lender plan to introduce tradetransactions in Indian rupees, officials said, as the SouthAsian nation looks to build up its shrinking foreign exchangereserves.

Until now, Bangladesh has only carried out tradetransactions in dollars.

State-owned Sonali Bank and Eastern Bank haveopened “nostro” accounts in rupees with State Bank of Indiaand ICICI Bank, officials from both bankssaid.

A nostro account refers to an account a bank holds abroad atanother bank in the currency of that jurisdiction. Such accountsare used for international trade and to settle other foreignexchange transactions.

“This is just the beginning. More banks will join us in thecoming days. It will ease pressure on the foreign reserves,”Afzal Karim, managing director of Sonali Bank, told Reuters.

The exchange rate mechanism will be decided on across-currency basis by individual banks and a formalannouncement will be made on July 11, said Ali Reza Iftekhar,managing director of Eastern Bank.

“The use of the Indian Rupee in India-Bangladesh tradeprovides a convenient and cost-effective mechanism forconducting cross-border transactions, contributing to thestrengthening of economic ties between the two nations,”Iftekhar said.

India is Bangladesh’s second-largest source of imports afterChina, with Dhaka’s exports to India standing at $2 billion inthe year to June 2022 while Bangladesh’s imports from Indiawere$13.69 billion.

Bangladesh is struggling to pay for imported fuel because ofa dollar shortage. Its dollar reserves have shrunk by more thana third since Russia’s February 2022 invasion of Ukraine tostand at a seven-year low of $31.60 billion.

The value of Bangladesh’s taka currency fell by over a sixthduring the 12 months through May.