Reserve Bank cuts the hedging limit without underlying exposure to USD 5 million and brings in a Foreign Exchange Risk Reserve

10 October 2026

The Reserve Bank of India announced regulatory measures for the foreign exchange market on 10 October 2026, issued through A.P. (DIR Series) Circular No. 25 and Circular No. 26.
Authorised Dealers may no longer permit users to rebook any rupee foreign exchange derivative contract, deliverable or non-deliverable, that was cancelled with any Authorised Dealer after the directions were issued. Rollover on maturity continues to be allowed.
The limit for taking rupee foreign exchange derivative contracts to hedge contracted exposures without producing documentary evidence of the underlying exposure has been reduced from USD 100 million to USD 5 million equivalent across all Authorised Dealers.
The same reduction from USD 100 million to USD 5 million equivalent applies to exchange traded rupee currency derivatives taken without proof of underlying exposure, across all Recognised Stock Exchanges put together.
Authorised Dealers must now obtain and keep an undertaking from the user that the same exposure has not been hedged with any other Authorised Dealer.
A Foreign Exchange Risk Reserve has been introduced for rupee derivative contracts with a notional value above USD 2 million equivalent that hedge current account exposures where the user buys foreign currency against the rupee. The reserve is 20 per cent of the rupee equivalent of the notional amount of each transaction and must be held with the Reserve Bank in cash.
The Reserve Bank said the measures respond to evolving conditions and are meant to ensure the orderly functioning of the foreign exchange market.