In view of difficulties being faced by exporters in getting payments from crisis-hit Sri Lanka, the RBI on Thursday allowed settlement of trade transactions in Indian rupee outside the Asian Clearing Union (ACU) mechanism.

In March, the government had guaranteed a term loan of USD 1 billion extended by the State Bank of India (SBI) to Sri Lanka for financing purchase of essential goods by the island nation from India.

"In view of the difficulties being experienced by exporters in receipt of export proceeds from Sri Lanka and SBI's credit facility...it has been decided that such trade transactions with Sri Lanka, falling under the said arrangement, may be settled in INR outside the ACU mechanism," the RBI said in a circular.

Under the arrangement, financing of export of eligible goods and services from India would be allowed subject conditions and whose purchase may be agreed to be financed by SBI under the agreement.

Sri Lanka is facing its worst economic crisis since gaining independence from Britain in 1948.

The crisis has been caused in part by a lack of foreign currency, which means the country cannot afford to pay for imports of staple foods and fuel, leading to acute shortages and very high prices.