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Informist, Monday, Apr. 20, 2026

 

By Pratiksha

 

NEW DELHI – The Reserve Bank of India Monday unwound some of its recent regulatory restrictions on foreign exchange trading. The partial relaxation suggests that the central bank is only comfortable with hedging by corporates and still doesn't want a build-up of speculative positions in the currency market, said market participants. 

 

The relaxations came after RBI Governor Sanjay Malhotra earlier this month said that the recent regulatory measures in the foreign exchange segment were not permanent or structural.

 

The central bank, after market hours on Monday, withdrew measures issued on Apr. 1 that prohibited authorised dealers from offering resident and non-resident clients non-deliverable forward contracts involving the rupee. The RBI also rolled back curbs that barred banks from rebooking foreign ‌exchange derivative contracts cancelled after Apr. 1. 

 

The RBI said banks cannot undertake any foreign exchange derivative contract involving the rupee with their related parties, except in two cases. Banks can cancel and roll over foreign exchange derivative contracts involving the rupee with their related parties, and for transactions with unrelated non-resident users on a back-to-back basis, it said.

 

Market participants said by choosing to only rollback the Apr. 1 directions, the central bank has restored the space for normal hedging activity by corporates, which includes exporters and importers.

 

"In a nutshell, RBI has given back all previous rights to the corporates. Importers and exporters can now again rollover and cancel their forward positions whenever they want to," said Ritesh Bhansali, deputy chief executive officer at Mecklai Financial Services Ltd. "Cancelling and rolling over are important part of hedging forwards. Whenever market goes haywire for corporates, these tools are helpful." 

 

In a bid to prevent the rupee from depreciating to successive record lows following the US and Israel's attack on Iran on Feb. 28, the RBI on Mar. ‌27 had targeted arbitrage trades by mandating that banks trim their onshore net open positions to $100 million, hitting the popular trade in which banks buy dollars onshore and sell the greenback in NDF market to benefit from the spread. However, the measure failed to provide relief to the currency as banks closed the positions by offering them to corporates and related parties, dealers said.

 

Following this, the central bank doubled down on its support for the rupee and issued a second round of restrictions on Apr. 1, which led to the Indian currency jumping almost 2% against the dollar. It is these directions that the central bank has rolled back Monday with immediate effect. The $100 million limit on banks' net open rupee positions in the onshore market is still in place.

 

"Nothing has changed for the banks, they will still get to keep only $100 million end-of-day positions. It is only corporates whose life has gotten easier," a currency dealer at foreign bank said. 

 

Kunal Sodhani, head of treasury at Shinhan Bank India, said that by retaining net open position limits, the central bank is simultaneously ensuring that arbitrage-driven or directional trades do not rebuild in a way that could amplify volatility and leave the rupee exposed to external shocks.

 

Despite the partial reversal of the foreign exchange restrictions, market participants are of the view that the limit on banks' net open rupee positions in the onshore market will stay in place in the near term or until uncertainties related to the war in West Asia persist. 

   

"Build-up of speculative bets is the bigger problem, that is why the cap (of $100 million) will take some time to go. At least till the global uncertainties go away," a currency dealer at a private-sector bank said. 

 

The RBI is likely to remain cautious, preferring tighter control over speculative exposures until there is clearer stability in external conditions, Sodhani said. End

 

US$1 = INR 93.13

 

Edited by Akul Nishant Akhoury

 

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