Forex hedging threshold cut to $5 million from $100 million
The Reserve Bank of India issued two circulars on October 10, 2026, tightening foreign exchange derivative rules. The hedging threshold without underlying exposure was cut from $100 million to $5 million, and a new 20 percent risk reserve applies to large INR derivative contracts.
No more rebooking, tighter hedging caps
The Reserve Bank of India (RBI) issued two circulars, A.P. (DIR Series) Circular No. 25 and No. 26, introducing four measures for the foreign exchange market.
Authorised Dealers can no longer let users rebook any cancelled foreign exchange derivative contract involving the rupee, whether deliverable or non-deliverable, though rollover on maturity remains permitted under existing rules.
The threshold for undertaking foreign exchange derivative transactions without establishing an underlying exposure has been cut from $100 million to $5 million equivalent, applying across all Authorised Dealers.
The same reduction, from $100 million to $5 million, applies to exchange-traded currency derivative positions involving the rupee across all Recognised Stock Exchanges.
A cash buffer for big hedges
Authorised Dealers must now obtain and retain a written undertaking from users hedging contracted exposures, confirming the same exposure has not already been hedged elsewhere.
For foreign exchange derivative contracts involving the rupee with a notional value above $2 million, Dealers must maintain a Foreign Exchange Risk Reserve in cash with the RBI, equal to 20 percent of the INR equivalent of each transaction's notional amount, when used to hedge current account purchases of foreign currency against the rupee.
Discipline has a price
The sharp cut in the no-questions-asked hedging threshold and the new cash reserve requirement signal the RBI's discomfort with speculative rupee positioning.
Locking 20 percent of notional value in cash raises the cost of large hedges and discourages speculative positioning through formal channels.
For corporates with genuine currency exposure, the paperwork burden grows alongside the compliance risk.