3 min readMumbaiApr 2, 2026 01:51 AM IST
The Reserve Bank of India (RBI) has directed authorised dealer (AD) banks to discontinue offering non-deliverable derivative contracts involving the Indian rupee to both resident and non-resident users, with immediate effect. The move is aimed at strengthening oversight in the foreign exchange derivatives market.
According to the new guidelines, banks and other ADs are prohibited from entering into or facilitating any non-deliverable derivative transactions linked to the rupee. It is seen as part of a broader effort to curb speculative activity and enhance transparency in currency markets as the rupee has come under pressure in the wake of the West Asia conflict.
The rupee, which had fallen below 95, closed at 94.81 against the dollar Wednesday. However, Wednesday’s directive provides some operational flexibility.
Authorised dealers may continue to offer deliverable foreign exchange derivative contracts, provided these are strictly used to meet genuine hedging requirements of clients, the RBI said. Importantly, users availing such contracts must not simultaneously hold offsetting positions in non-deliverable derivatives. To ensure compliance, dealers have been granted the authority to request any necessary documentation or information from clients to verify the legitimacy and purpose of such transactions, it said.
In a further tightening of norms, the regulator has also barred the rebooking of any foreign exchange derivative contract — whether deliverable or non-deliverable — that is cancelled after the issuance of these instructions. This measure is expected to prevent misuse of cancellation and rebooking practices that could otherwise be employed to circumvent regulatory intent. As with other provisions, ADs may seek supporting documents from users to confirm adherence to the rule.
Additionally, the guidelines introduce strict restrictions on dealings with related parties. ADs are now expressly prohibited from undertaking foreign exchange derivative transactions with entities classified as related parties. The definition of “related parties” aligns with established accounting standards, including Indian Accounting Standard (Ind AS) 24 and International Accounting Standard (IAS) 24, or any equivalent frameworks.
The RBI last week told banks to limit their net open exposure to the currency in the forex market to $100 million by the end of each day. Authorized dealers must comply with this rule by April 10.
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Market participants believe the measures will bring greater discipline to the forex derivatives segment, ensuring that they are used for risk management rather than speculative purposes. The RBI directive has come into force with immediate effect and will remain applicable until further review.
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