The Reserve Bank of India (RBI) on Monday allowed banks to exclude positions arising from its newly announced foreign-currency swap facilities for foreign currency non-resident (bank) deposits, external commercial borrowings, and overseas foreign-currency borrowings from the calculation of their net overnight open position in rupee (NOP-INR) limits.
Policy measures announced by the RBI and the government to attract foreign capital into government securities and banking channels are expected to bring in $40–50 billion in inflows.
On March 27, the central bank directed banks to maintain their net open position in rupee (NOP-INR) in the onshore deliverable market within $100 million at the end of each business day, with compliance required by April 10. The move marked the first time since 2011 that the RBI had explicitly prescribed an NOP limit, a parameter that had earlier been set by banks’ boards.
The measure was aimed at curbing the buildup of arbitrage positions between the onshore market and the offshore non-deliverable forward market. Market participants had estimated that positions worth around $40 billion would need to be unwound following the directive.
Subsequently, on April 1, the RBI tightened rules governing offshore foreign exchange derivative transactions and barred banks from undertaking certain transactions with related parties. Market participants said the clarification came after some banks sought to transfer positions to clients instead of unwinding them on their own books.
On April 20, the RBI partially rolled back some of these restrictions, allowing the cancellation and rollover of existing contracts, as well as certain transactions through the back-to-back route. However, the central bank retained the $100 million cap on NOP-INR positions and continued restrictions on related-party transactions.
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