The Reserve Bank of India on October 10, 2026 tightened the rules governing the foreign exchange market, sharply cutting the threshold for forex derivative transactions undertaken without establishing an underlying exposure and barring the rebooking of cancelled rupee-linked contracts.
In a press release, the central bank said the measures were aimed at ensuring the orderly functioning of the foreign exchange market amid evolving conditions.
What changes
The headline move is a twenty-fold cut in the exposure threshold: users hedging contracted exposures through forex derivatives without establishing the existence of the underlying exposure will now face a limit of $5 million equivalent across all authorised dealers, down from $100 million. The corresponding limit for positions in exchange-traded currency derivatives involving the rupee has also been lowered to $5 million from $100 million, aggregated across all recognised stock exchanges.
Authorised dealers will no longer be permitted to let users rebook any rupee-linked foreign exchange derivative contract — deliverable or non-deliverable — that was cancelled with an authorised dealer after the directions were issued. Rollover of contracts on maturity remains permitted under existing rules.
Documentation gets stricter too. Dealers must now obtain and retain an undertaking from users confirming that the same underlying exposure has not been hedged with another authorised dealer, closing a loophole that allowed duplicate hedging.
A new cash reserve requirement
The RBI has also introduced a Foreign Exchange Risk Reserve (FERR): authorised dealers must maintain a cash reserve with the central bank equal to 20 percent of the rupee value of the notional amount of each eligible transaction exceeding $2 million. The requirement applies to rupee-linked forex derivatives taken to hedge current-account exposures where the user buys foreign currency against the rupee.
Tighter liquidity alongside
The forex measures sit within a broader tightening posture. From the fortnight beginning October 16, banks must maintain at least 99 percent of their prescribed cash reserve ratio on a daily basis, up from 90 percent, though the overall CRR is unchanged. That follows the RBI's October 9 announcement of a Rs 25,000-crore open market sale of government securities on October 13 to absorb surplus liquidity.
Taken together, the steps signal a central bank determined to curb speculative positioning in the currency market while keeping liquidity on a shorter leash.
Sources:
Moneycontrol — RBI tightens forex derivative rules, cuts exposure threshold to $5 million
BW Businessworld — RBI Mandates 20% Reserve On Forex Deals Above $2 Mn
In a press release, the central bank said the measures were aimed at ensuring the orderly functioning of the foreign exchange market amid evolving conditions.
What changes
The headline move is a twenty-fold cut in the exposure threshold: users hedging contracted exposures through forex derivatives without establishing the existence of the underlying exposure will now face a limit of $5 million equivalent across all authorised dealers, down from $100 million. The corresponding limit for positions in exchange-traded currency derivatives involving the rupee has also been lowered to $5 million from $100 million, aggregated across all recognised stock exchanges.
Authorised dealers will no longer be permitted to let users rebook any rupee-linked foreign exchange derivative contract — deliverable or non-deliverable — that was cancelled with an authorised dealer after the directions were issued. Rollover of contracts on maturity remains permitted under existing rules.
Documentation gets stricter too. Dealers must now obtain and retain an undertaking from users confirming that the same underlying exposure has not been hedged with another authorised dealer, closing a loophole that allowed duplicate hedging.
A new cash reserve requirement
The RBI has also introduced a Foreign Exchange Risk Reserve (FERR): authorised dealers must maintain a cash reserve with the central bank equal to 20 percent of the rupee value of the notional amount of each eligible transaction exceeding $2 million. The requirement applies to rupee-linked forex derivatives taken to hedge current-account exposures where the user buys foreign currency against the rupee.
Tighter liquidity alongside
The forex measures sit within a broader tightening posture. From the fortnight beginning October 16, banks must maintain at least 99 percent of their prescribed cash reserve ratio on a daily basis, up from 90 percent, though the overall CRR is unchanged. That follows the RBI's October 9 announcement of a Rs 25,000-crore open market sale of government securities on October 13 to absorb surplus liquidity.
Taken together, the steps signal a central bank determined to curb speculative positioning in the currency market while keeping liquidity on a shorter leash.
Sources:
Moneycontrol — RBI tightens forex derivative rules, cuts exposure threshold to $5 million
BW Businessworld — RBI Mandates 20% Reserve On Forex Deals Above $2 Mn
