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Regulatory Measures for the Foreign Exchange Market

Reserve Bank of India (RBI) has announced regulatory measures for the foreign exchange market.

Cancellation and rebooking / rollovers of foreign exchange derivative contracts

  • An Authorised Dealer shall not permit users to rebook any foreign exchange derivative contract involving the INR, whether deliverable or non-deliverable, which has been cancelled with any of the Authorised Dealers.
  • An Authorised Dealer may, however, continue to permit users to rollover foreign exchange derivative contracts on maturity, subject to compliance with the extant directions.

Threshold limit for taking positions without requirement to establish the existence of underlying

  • Authorised Dealers were permitted to allow users to take positions upto USD 100 million equivalent of notional value (outstanding at any point of time), across all Authorised Dealers, for hedging contracted exposure without the requirement to establish the existence of underlying exposure. 
  • Further, a user was allowed to take positions (long or short), without having to establish existence of underlying exposure, upto a single limit of USD 100 million equivalent across all currency pairs involving INR, put together, and combined across all Recognized Stock Exchanges. 
  • The threshold for each of the above facilities shall, henceforth, be USD 5 million equivalent of notional value (outstanding at any point of time).

Requirement for Additional Documentation

  • An Authorised Dealer shall, at the time of offering a foreign exchange derivative contract involving INR to a user to hedge a contracted exposure, obtain and retain an undertaking from the user that the same underlying exposure has not been hedged with any other Authorised Dealer. 
  • Where the same exposure is being hedged in parts with more than one Authorised Dealer, the details of amounts already booked with other Authorised Dealers should be clearly indicated in the undertaking. 
  • This undertaking can also be obtained as a part of the deal confirmation. This shall be in addition to any other documents which the Authorised Dealers may call for from users.

Introduction of Foreign Exchange Risk Reserve (FERR) 

  • Authorised Dealers shall be required to maintain a Foreign Exchange Risk Reserve (FERR) for foreign exchange derivative contracts involving INR –
    • Undertaken with users.
    • Undertaken by it for hedging the currency risk of its own assets and liabilities.
  • The FERR shall be applicable to all foreign exchange derivative contracts involving INR –
    • Of notional value exceeding USD 2 million equivalent undertaken for the purpose of hedging current account transactions where the user is purchasing foreign currency against INR.
    • Where the Authorised Dealer is purchasing foreign currency against INR.
  • The FERR shall be equal to 20% of the INR equivalent of the notional amount of each derivative contract.
  • The FERR shall be deposited and maintained by way of cash in India with the RBI on a daily basis and shall be maintained until the termination of the contract.

Non-Deliverable Derivative Contracts (NDDCs)

  • Authorised Dealer Category-I banks with an operating IFSC Banking Unit and Standalone Primary Dealers authorised as Authorised Dealer Category-III were permitted to offer non deliverable derivative contracts (NDDCs) involving INR to non-resident users without any restriction in terms of purpose. 
  • Henceforth, Authorised Dealers shall offer NDDCs involving INR to a non-resident user only for the purpose of hedging.


References

Reserve Bank of India. (2026, October 10). RBI Announces Regulatory Measures for the Foreign Exchange Market. Retrieved from https://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=63783

Reserve Bank of India. (2026, October 10). Risk Management and Inter-Bank Dealings. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13737&Mode=0

Reserve Bank of India. (2026, October 12). Risk Management and Inter-Bank Dealings. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13739&Mode=0

Reserve Bank of India. (2026, October 10). Risk Management and Inter-Bank Dealings - Foreign Exchange Risk Reserve. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13738&Mode=0


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