New FX derivative rules: what finance teams must do

The Reserve Bank of India changed the rules for foreign-exchange derivatives involving the rupee on 10 October 2026. The changes matter most to importers and other businesses that buy foreign currency against INR to hedge current-account payments.

Four changes effective from 10 October

1. Cancelled INR derivative contracts cannot be rebooked

An Authorised Dealer cannot permit a user to rebook an INR-involving foreign-exchange derivative contract that was cancelled after the directions were issued. A rollover on maturity remains permitted, subject to the existing regulatory requirements.

2. The no-underlying threshold fell from USD 100 million to USD 5 million

The single limit for positions without establishing the underlying exposure is now USD 5 million equivalent, outstanding at any point in time, across all Authorised Dealers. The corresponding combined limit for INR currency derivatives across recognised stock exchanges is also USD 5 million.

3. A non-duplication undertaking is now required

For an INR derivative used to hedge a contracted exposure, the bank must obtain and retain an undertaking that the same exposure has not been hedged with another Authorised Dealer. If the exposure is split across banks, the undertaking must state the amounts already booked elsewhere. The bank is responsible for checking the underlying and retaining supporting documents for at least two years.

4. Banks must maintain FERR on specified contracts

The Foreign Exchange Risk Reserve is 20% of the INR equivalent of the notional amount of each applicable contract. It is maintained by the Authorised Dealer as cash with RBI on a daily, gross basis and earns no interest.

When does the 20% FERR apply?

For a bank’s derivative contract with a user, all of the following must be true:

1. The contract involves INR.
2. The user is purchasing foreign currency against INR.
3. The notional value of that contract exceeds USD 2 million equivalent.
4. The purpose is to hedge a current-account transaction.

RBI’s example is direct: a USD 10 million contract at ₹95 per USD has a ₹95 crore notional amount, producing FERR of ₹19 crore for the Authorised Dealer.

What the FAQ excludes

RBI also excludes user hedges for current payments that arise from an underlying capital-account transaction—its examples include interest on external commercial borrowings, coupons on resident debt held by non-residents and dividends payable to non-resident investors.

Contracts entered into before the relevant directions are outside FERR. But a later rollover is treated as a fresh contract and attracts FERR if it otherwise meets the conditions. Splitting one requirement into multiple contracts to avoid the USD 2 million threshold is prohibited.

Practical action for finance and treasury teams

1. Build a contract inventory. Identify every outstanding INR derivative, its trade date, maturity, notional amount, underlying payment and bank.
2. Separate new trades from legacy trades. Flag contracts entered before 10 October and any rollover planned after that date.
3. Control duplicate hedging. Maintain a bank-wise register of how much of each exposure has already been hedged before signing the new undertaking.
4. Review cancellation decisions. A cancelled contract cannot simply be rebooked; discuss alternatives and documentation with the Authorised Dealer before cancelling.
5. Ask the bank for the commercial impact. FERR is the bank’s regulatory reserve, not the customer’s deposit. Confirm any effect on pricing, limits or product availability directly with the bank rather than assuming it.

Reviewed on 18 October 2026. This is a general explanation of RBI’s directions and FAQ, not transaction-specific treasury or legal advice.