MUMBAI: India’s central bank will allow domestic entities to invest in Pakistan if they apply for the bank’s approval, the Reserve Bank of India said in a statement on Friday.

Previously, Indian entities were not allowed to invest in neighbouring Pakistan.

The move follows on the heels of the Aug 1 decision by the Indian commerce ministry to overturn its ban on foreign investment (in industrial ventures) from Pakistan — a move designed to build goodwill amid a renewed push for a peace settlement between the two neighbours.

Later the same month, the Reserve Bank of India (RBI) also opened up doors to Pakistani citizens and entities to invest in shares and convertible debentures of Indian companies under the Foreign Direct Investment Scheme.

The Indian decision to accept the FDI from Pakistan was taken in April this year when the two trade ministers met in New Delhi and was thought to be in response to Pakistan’s decision to grant India the `Most Favoured Nation (MFN)` status by the end of the year.

The developments are believed by traders and investors to help tackle troublesome issues such as Kashmir, which has soured relations between the two countries since their creation 65 years ago.