India’s central bank further tightened its forex curbs on Wednesday by targeting the rebooking of cancelled forex derivative contracts and tightening norms around related-party transactions.
If a company or trader cancels a dollar hedge, they can no longer re-enter the same trade to benefit from price movements, limiting their ability to take directional bets under the guise of hedging.
Separately, banks have been barred from undertaking foreign exchange derivative contracts with related parties, as defined under the Indian Accounting Standard (Ind AS) 2.
Wednesday’s moves come after the Reserve Bank of India (RBI) first capped banks’ net open positions (NOP) in the domestic market at $100 million at the end of each business day on 27 March.
Then, on Wednesday, Mint reported that RBI had asked banks for data on positions taken by their corporate clients, with the exercise aimed at assessing on-ground positioning rather than signalling immediate regulatory actions.
The new regulations have come into effect immediately.
Together, these measures aim to curb one-sided positioning in the rupee, which has been hitting successive record lows. The currency has fallen by 4.5% since the war in West Asia began on 28 February, and 11% in fiscal year 2026 (FY26) due to continuous selling by foreign portfolio investors (FPIs).
Kunal Sodhani, head of treasury at Shinhan Bank, said the latest measures by the RBI mark a clear and coordinated shift towards tightening speculative activity and reasserting control over rupee dynamics.
He added that the restriction on rebooking of cancelled forex derivative contracts closes a long-standing loophole that allowed market participants to roll over or reprice positions while presenting them as hedging.
“In the near term, this is likely to trigger unwinding of such positions, reducing artificial demand for dollars and providing support to the rupee, potentially leading to appreciation bias or at least enhanced stability,” said Sodhani.
The RBI’s moves come after signs that banks had found workarounds to the earlier NOP limits, including routing positions through corporate clients. “RBI saw that there were backdoor routes being used… so they are now shutting those loopholes,” a treasury official from a fund house said on condition of anonymity.
Anindya Banerjee, currency analyst at Kotak Securities, said Wednesday’s moves were a follow-up to the NOP circular, “and the RBI is trying to clamp down on any speculation in the rupee by all means because we are going through a global crisis because of the West Asia war”.
The central bank has also tightened related-party transactions rules, a step seen as targeting multinational firms or financial groups that may have been using different entities to route trades and bypass earlier restrictions.
Traders said such practices had gained traction after the RBI progressively liberalised access to offshore markets. Since 2020, banks were allowed to operate more freely across onshore and offshore markets to improve price discovery, indirectly enabling round-the-clock dollar-rupee quotes for corporates.
“That seamless access is now being curbed. If you call a bank late in the evening for a quote, they may now ask you to wait till the domestic market opens,” the treasury official said.
While these steps may bring some near-term stability, traders cautioned that they are unlikely to alter the rupee’s fundamental trajectory, which continues to be driven by global factors, capital outflows and elevated crude oil prices.
A Jefferies report on 29 March said that the forex derivative market is dominated by larger banks with gross onshore positions of $30-40 billion that offset each other. Banks often buy dollar forwards cheaply in India and sell them at a premium abroad, keeping risks balanced on paper while profiting from the difference.