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Informist, Thursday, Aug. 20, 2026

 

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--RBI Jain: Benefit of simplified, modernised FX norms should reach customer 
--RBI Jain: Urge FEDAI to bring principles-based regulation for FX to life 
--RBI Jain: Need to strengthen oversight, not fear global FX mkt integration 
--RBI Jain:Need to strengthen governance, not fear global FX mkt integration 
--RBI Jain: Need to strengthen risk mgmt, not fear global FX mkt integration 
--RBI Jain: Curtailed net open position on unhealthy arbitrage with NDF mkt 
--RBI Jain: Accountability in FX transactions cannot be automated 
--RBI Jain: Digital advances to make voice trading in FX expensive 
--RBI Jain: PSU bank participation in FX derivatives comparatively low 
--RBI Jain:Local currency cross-border trade to improve settlement efficiency 
--RBI Jain: Local currency cross-border trade to cut transaction costs 
--RBI Jain: Confident banks will focus on local currency cross-border trade 
--RBI Jain: Local currencies to play greater role in cross-border payments 
--RBI Jain: Local currencies to play greater role in cross-border trade 
--RBI Jain: Found gaps in banks' policies on customer FX transactions 
--RBI Jain: Urge bks to onboard customers to FX-Retail for better FX pricing 
--RBI Jain:Aim to simplify FX rulebook for authorised dealers in next decade
 

 

NEW DELHI – Customer-centric business processes by banks is a key force needed to improve retail forex pricing, Reserve Bank of India Deputy Governor Rohit Jain said in a speech, which was uploaded on the central bank's website Thursday. Pointing to a wide gap between regulatory intent and market outcomes, Jain said the FX-retail facility has given individuals and micro, small, and medium enterprisess direct access to competitive interbank pricing since 2019. However, usage has remained modest due to uneven bank onboarding and low customer awareness, issues that have been flagged repeatedly.

 

"Instead of expecting customers to change their behaviour to get a fair price, we should strive to bring the fair price into the channel they already use," Jain said. He urged authorised dealer banks to treat onboarding as a service standard this year. "I would urge authorised dealers banks to treat onboarding as a service standard this year, not as a compliance checkbox visited only when the Reserve Bank asks," he said.

 

Jain told market participants that the regulator aims to simplify the rulebook of foreign exchange management with a principle-based approach over the next decade. He was insistent that the benefit of this framework should reach customers as part of the authorised dealers' responsibilities in improving market access. Jain noted that the RBI had found gaps in the information available to customers on banks' policies related to foreign exchange transactions. 

 

Another policy priority for the deputy governor was an increase in cross-border trade and payments through local currencies, where he was confident that local banks would play a greater part. The move will result in lower transaction costs, fewer currency mismatches, better settlement efficiency and improved ability to trade where correspondent banking is costly or constrained, he said. Jain also urged regulated entities to not stop at setting up Special Rupee Vostro accounts but show willingness in identifying corridors with genuine two-way trade, quoting competitive conversion and hedging solutions, and finding avenues for productive deployment of rupee balances. 

 

Moreover, he urged the Foreign Exchange Dealers' Association of India to help bring principle-based regulations to life by converting them into consistent market practices. The RBI deputy governor's speech was given at the self-regulatory organisation's annual day on Friday. FEDAI should set a high benchmark for customer outcomes and deepen the professional capacity of market participants through training of both trade structures and regulatory frameworks, Jain said. It should also be candid in giving feedback to the RBI in constantly reviewing regulations and where the interpretation of policies is diverging, he said. 

 

On bank participation in the forex derivatives market, the RBI deputy governor said the market faces certain challenges in realising its full potential.

 

"First, participation remains skewed. Public sector banks, which hold deep relationships with MSMEs and smaller corporates outside the metros, underparticipate in forex derivatives relative to their balance sheet size," he said. At the same time, the client segment is dominated by large corporates, while the smaller clients who stand to gain most from currency risk hedging remain on the sidelines." Expanding the market-maker base, raising state-owned banks' participation, and encouraging electronic platforms are necessary priorities, he said.

 

Further, Jain said that artificial intelligence and machine learning can genuinely assist in document classification, anomaly detection, and identification of reporting inconsistencies. Accountability, however, cannot be automated in foreign exchange transactions. He said that models must be explainable, outcomes reviewable and cross-border data protected. Little is gained by replacing an opaque manual decision with an opaque automated one, except speed - and speed in the wrong direction is not an improvement.

 

On forwards and swaps trade, the RBI deputy governor said that Clearing Corp. of India's guaranteed settlement for forwards now extends to 36 months, and a trading platform with central clearing for forex options has also been introduced. Yet, forwards and swaps continue to be traded almost entirely over voice. This gap is expected to narrow as API-driven strategies make voice execution expensive for all but bespoke or odd-lot trades. While voice-negotiated dealing will still matter for complex or thin-liquidity trades, the direction for standardised products is clear. Authorised Dealers that adopt digital workflows early will set market convention, rather than follow it.

 

In his speech, Jain said a build-up of unhealthy arbitrage positions between the onshore deliverable and offshore non-deliverable forward markets in late March and early April this year prompted calibrated measures on net open positions. The RBI acted on net open positions, non-deliverable derivative offerings to customers and related-party transactions. Some of these measures have since been reversed. "As the market integrates further with global liquidity, the lesson is not to fear integration but to further strengthen risk management, governance and oversight arrangements," he said. The non-deliverable forward turnover is now about $7 billion a day - while the onshore-offshore spread has narrowed as integration has deepened, Jain added. 

 

On Jun. 24, the Reserve Bank of India had issued revised norms for calculating net open position of banks, effective from Apr. 1. The central bank said that under its revised norms, all open positions from onshore and offshore operations are captured in the calculation of net open position. Hence, a bank is not required to separately calculate onshore and offshore net open positions. 

 

Under the revised directions, a bank will have to compute net open position and maintain a capital charge for foreign exchange risk at both the consolidated and standalone levels. A commercial bank will also be required to meet capital requirements for foreign exchange risk on a continuous basis, meaning at the close of each business day.  End

 

US$1 = INR 95.7050

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Reported by Vaishali Tyagi and Aaryan Khanna 

Edited by Avishek Dutta

 

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