RBI Eases Offshore Forex Derivative Rules but Keeps $100 Million Position Cap

The Reserve Bank of India has rolled back some of the restrictions it earlier placed on offshore non-deliverable forward (NDF) forex trades. Banks can now again offer certain derivative contracts to both resident and non-resident customers. They are also allowed to cancel or rebook these contracts with immediate effect, which will make hedging easier for businesses.

Restrictions on Related-Party Transactions Remain

Even after the relaxation, banks are still not allowed to offer new derivative contracts to related parties. However, they can cancel or roll over existing contracts. This change shows the RBI wants to support genuine risk-management activities while still preventing misuse.

$100 Million Open Position Cap Still in Place

The RBI has kept the $100-million limit on banks’ open forex positions. This step is meant to prevent excessive speculative trading and reduce currency volatility. The central bank is taking a cautious approach, easing some rules while maintaining safeguards.

Why RBI Made These Changes?

Earlier restrictions created challenges for businesses that use forex contracts to manage payment delays or shipment changes. The RBI’s move suggests it is now comfortable allowing normal hedging activities, especially for importers and exporters.

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Recent Timeline of RBI Forex Measures

In late March, the RBI limited banks’ daily open rupee positions to $100 million and later restricted certain offshore derivative contracts. These steps helped the rupee strengthen from a record low of 95.12 to around 93 against the US dollar.

Conclusion

The RBI’s latest move shows a balanced approach, supporting businesses that need forex hedging while keeping strict limits to prevent speculative pressure and maintain currency stability.

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