The Reserve Bank of India on Monday partially rolled back some of the measures announced on April 1 that had barred banks from offering rupee-linked non-deliverable forwards, after stability returned to the foreign-exchange market.
Under the revised rules, banks can now undertake certain related-party transactions, including cancellation and rollover of existing contracts and deals via the back-to-back route. The revised instructions take effect immediately.
But banks remain barred from undertaking all foreign-exchange derivative transactions with related parties, while the $100 million cap on net open positions in the onshore deliverable market, introduced on March 27, stays.
Market participants said the central bank now sees lower arbitrage risk after banks complied with the April 10 deadline.
At the April 8 monetary policy press conference, RBI Governor Sanjay Malhotra said the regulatory measures would not “remain forever.” The curbs were introduced after heightened volatility in foreign-exchange markets in March, following the West Asia conflict.
markets in March, following the West Asia conflict, put the rupee under pressure, driving a depreciation of more than 4 per cent against the dollar. Banks had built up arbitrage positions between non-deliverable forward markets and deliverable markets, prompting the central bank to intervene.
Dealers said earlier restrictions on cancellation and rebooking against the same underlying exposure had created operational challenges, especially in cases involving delays in payments or receipts. Banks would have struggled to verify whether the same exposure was being reused, often relying on client declarations. The curbs also complicated rupee exposure management for foreign banks dealing with overseas clients through Indian branches.
“Restriction on cancellation and rebooking against same underlying exposure had created difficulties for those with genuine reasons, for instance a delay in payment or receipt. It would have also been operationally difficult for banks to track and establish whether the same underlying was being used to rebook. They would have had to rely on undertaking from clients. The perception that such moves could be perceived as regressive,” said Abhishek Goenka, founder and chief executive officer of IFA Global.
“The relaxation in cancellation and rebooking with related parties would have created problems for foreign banks head offices hedging INR-related risk of trades done with overseas clients with Indian branches,” he added.
Market participants said the move is unlikely to have an immediate impact on the spot rupee, with broader global factors continuing to drive currency direction. They said the RBI’s decision mainly restores flexibility in the offshore derivatives market rather than altering underlying currency trends. “The move is unlikely to have an immediate impact on the spot rupee, as broader global factors will continue to drive its direction,” said the treasury head at a private bank.
The rupee weakened on Monday as rising geopolitical tensions in West Asia triggered volatility across financial markets. The local currency came under pressure after the US Navy seized an Iranian vessel, raising concerns over energy flows through the Strait of Hormuz and pushing crude oil prices higher. A stronger dollar and a shift toward safer assets added to the pressure.
The rupee settled at 93.12 per dollar, compared with the previous close of 92.93.
Meanwhile, market participants said the current net open position cap of about $100 million is unlikely to be eased in the near term. Continued geopolitical uncertainty and elevated crude oil prices pose risks to India’s current account deficit and inflation, prompting expectations that the RBI will remain cautious and retain limits on speculative exposures until external conditions stabilise.
“The framework suggests a controlled normalisation approach, supporting genuine hedging demand while maintaining guardrails against destabilizing capital flows and opportunistic positioning,” said Kunal Sodhani, head of treasury, Global Trading Centre, FX & Rates Treasury at Shinhan Bank India.
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