RBI Tightens Forex Derivatives Rules; Opens Special Dollar Window for Oil Companies

New Delhi, Oct 10 (KNN) The Reserve Bank of India (RBI) on Saturday announced tighter regulations for rupee-linked foreign exchange (forex) derivatives to strengthen market discipline and ensure orderly trading amid evolving market conditions. It also opened a special window to meet the daily dollar requirements of three public sector oil marketing companies (OMCs).

The measures come amid pressure on the rupee against the US dollar. The RBI, however, said the regulatory changes were aimed at strengthening risk management and maintaining an orderly and transparent foreign exchange market.

Under the new directions, authorised dealers (ADs) will not be permitted to allow users to rebook rupee-linked forex derivative contracts that were cancelled with any authorised dealer after the issuance of the directions. Rollover of contracts on maturity will continue to be permitted, subject to existing regulations.

Threshold for Unhedged Forex Transactions Cut

The RBI has reduced the threshold for undertaking forex derivative transactions to hedge contracted exposures without establishing the underlying exposure from USD 100 million to USD 5 million across all authorised dealers.

The corresponding threshold for taking positions in exchange-traded rupee-linked currency derivatives without establishing an underlying exposure has also been lowered from USD 100 million to USD 5 million across all recognised stock exchanges taken together.

The central bank has also made additional documentation mandatory. Users entering into rupee-linked forex derivative contracts to hedge contracted exposures must provide an undertaking confirming that the same underlying exposure has not been hedged through another authorised dealer.

20% Foreign Exchange Risk Reserve Introduced

The RBI has introduced a Foreign Exchange Risk Reserve (FERR) requirement for rupee-linked forex derivative contracts with a notional value exceeding USD 2 million.

Under the measure, authorised dealers must maintain a cash reserve with the RBI equivalent to 20 per cent of the rupee value of the notional amount of each qualifying transaction. The requirement applies to contracts used to hedge current account exposures where the user purchases foreign currency against the rupee.

The measure adds a reserve requirement for larger qualifying transactions and is intended to strengthen risk management in the forex derivatives market.

Special Dollar Window for Oil Companies

The Reserve Bank of India (RBI) on Saturday announced a special window to meet the entire daily dollar requirements of three state-run oil marketing companies (OMCs), as the rupee faces pressure against the US dollar.

The facility will cover Indian Oil Corporation Ltd (IOC), Hindustan Petroleum Corporation Ltd (HPCL) and Bharat Petroleum Corporation Ltd (BPCL), the central bank said in a press release.

Under the arrangement, the RBI will sell US dollars to the three OMCs through designated banks. The facility will take effect from October 12, 2026, and remain in place until further notice.

(KNN Bureau)