Just days after it clamped down on banks’ local currency limits, the Reserve Bank of India (RBI) on Wednesday stepped up efforts to curb speculation against the battered rupee, restricting lenders from offering certain offshore foreign
exchange derivative contracts.
The central bank barred authorised dealers (banks) from offering non-deliverable forward (NDF) contracts in the rupee to both resident and non-resident clients. In effect, corporates and treasury desks can no longer take NDF positions.
Banks may continue to offer deliverable forex derivatives for genuine hedging needs, but only if clients are not maintaining offsetting non-deliverable positions elsewhere.
The move comes amid sustained pressure on the rupee and is aimed at curbing speculative activity. Since the onset of the West Asia conflict, the currency has weakened 4.24% in a month and nearly 11% in FY26, touching a record low of 94.83 against the dollar on Monday.
The RBI’s intent is to identify the true holders of arbitrage positions and ensure banks do not warehouse or pass on such exposures to clients. Lenders have been empowered to seek any information or documentation necessary to verify compliance.
In a further clampdown, the central bank has prohibited the rebooking of any forex derivative contract—deliverable or non-deliverable—once cancelled after the issuance of the circular, shutting down a commonly used tactic to time currency movements.
It has also barred authorised dealers from entering into derivative transactions with related parties, adopting definitions under Ind AS 24, IAS 24, or equivalent standards to prevent conflicts of interest.
The directive takes immediate effect and will remain in force until further review.
This follows last week’s measure capping banks’ net open position (NOP-INR) in the onshore deliverable market at $100 million at the end of each business day, with a compliance deadline of April 10, 2026.
Taken together, the curbs on NDF participation, rebooking of contracts, and open position limits underscore the RBI’s push to tighten oversight, reduce regulatory arbitrage between onshore and offshore markets, and ensure that derivatives are used strictly for hedging rather than speculation.
