RBI Tightens Rules for Foreign Exchange Derivative Contracts and Exposure Limits
Court / Authority
Reserve Bank of India
Update / Judgement Date
05 Nov 2026
Case No.
Press Release: 2026-2027/1305 (A.P. (DIR Series) Circular No. 25 & 26)
Source
WCP News Bulletin
Author
Soumya Gupta — WCP Legal Desk
Reading Time
2 min read
View Count
Background
● The measures have been introduced in response to evolving exchange market conditions and to ensure orderly market functioning.
● Earlier rules permitted higher flexibility, including a USD 100 million threshold for derivative positions without verifying underlying exposure.
What Has Changed
Provision Earlier Position New Position Effective From
Rebooking Cancelled Contracts Permitted under extant guidelines Prohibited for all INR derivative contracts after issuance of Directions 10 October 2026
Exposure Threshold without Proof USD 100 million equivalent Reduced to USD 5 million equivalent across ADs and Stock Exchanges 10 October 2026
Double Hedging Undertaking Standard documentation Mandatory undertaking confirming no duplicate hedging across dealers 10 October 2026
Foreign Exchange Risk Reserve (FERR) None 20% cash reserve with RBI for notional value > USD 2 million on current account exposures 10 October 2026
Compliance Action Points
1. Update FX risk management systems to block rebooking of cancelled INR foreign exchange derivative contracts.
2. Track client derivative exposure limits against the revised USD 5 million unhedged threshold across all transactions.
3. Implement mandatory documentation processes to collect user undertakings against duplicate hedging.
4. Establish operational mechanism to deposit 20% cash FERR with the RBI for eligible current account forex hedges over USD 2 million.
Full Judgement / Attachment
Full Judgement
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