RBI Eases Forex Curbs, Allows Select NDF Transactions; Keeps $100 Million Cap

The Reserve Bank of India has revised its recent foreign exchange measures, softening certain restrictions imposed earlier this month as market conditions show signs of stabilisation. 

Policy Rollback and Revised Rules 

The central bank has partially reversed curbs introduced on April 1 that had restricted banks from offering rupee-linked non-deliverable forward contracts.  

Under the updated framework, banks are now permitted to carry out specific related-party transactions. These include cancellation of existing contracts, rollover of positions and execution of deals through back-to-back arrangements. The revised instructions have come into force with immediate effect. 

However, not all restrictions have been lifted. Banks continue to be prohibited from undertaking all foreign-exchange derivative transactions with related parties. In addition, the previously introduced cap of $100 million on net open positions in the onshore deliverable market, announced on March 27, remains unchanged. 

Reason Behind the Move and Market Context 

Market participants indicated that the regulator’s decision reflects reduced arbitrage risks following compliance by banks with the April 10 deadline. Earlier, banks had built positions exploiting price differences between non-deliverable forward markets and onshore deliverable markets, prompting intervention. 

At a monetary policy briefing on April 8, RBI Governor Sanjay Malhotra had stated that such measures were not intended to be permanent. The restrictions were originally introduced amid heightened volatility in March, when the rupee weakened by more than 4% against the US dollar due to geopolitical tensions linked to the West Asia conflict. 

The curbs had also impacted banks’ treasury operations, leading to losses during the January to March quarter. 

Operational Challenges and Industry Feedback 

Earlier restrictions on cancelling and rebooking contracts against the same underlying exposure created operational hurdles. Delays in payments or receipts made it difficult for banks to manage exposures efficiently. Institutions also faced challenges in verifying whether the same exposure was being reused, often relying on client declarations. 

Abhishek Goenka noted that such restrictions posed difficulties even in genuine scenarios and were operationally complex to implement. He added that the perception of these measures could be viewed as regressive. 

Foreign banks, particularly those managing rupee exposure for overseas clients through Indian branches, also faced complications under the earlier framework. 

Rupee Movement and Outlook 

Despite the easing of rules, market participants do not expect an immediate impact on the spot rupee, as broader global factors continue to drive currency movements. The rupee weakened to 93.12 against the US dollar, compared with 92.93 in the previous session. 

The decline followed renewed geopolitical tensions after the US Navy seized an Iranian vessel, raising concerns over energy flows through the Strait of Hormuz. Rising crude oil prices, a stronger dollar and increased demand for safe-haven assets further added pressure on the currency. 

Participants also expect the $100 million cap on net open positions to remain in place in the near term, given ongoing risks from geopolitical uncertainty and elevated oil prices, which could affect India’s current account deficit and inflation outlook. 

Kunal Sodhani described the approach as a controlled normalisation, supporting genuine hedging demand while maintaining safeguards against speculative activity. 

Read More: Over 200% Gains for SGB Series VII Investors as RBI Announces April 20 Redemption! 

Conclusion 

The RBI’s calibrated easing signals a shift towards normalisation while retaining key safeguards, balancing flexibility for market participants with caution amid persistent global uncertainties. 

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