India central bank tightens rupee derivatives rules to support currency
India's central bank is stepping up its defense of the rupee as pressure from higher oil prices and capital outflows weighs on the currency. The latest measures restrict overseas use of rupee non-deliverable contracts to hedging and extend a 20% cash reserve requirement to banks' own rupee hedge positions.
Highlights
- Reserve Bank of India restricts non-deliverable rupee derivatives to hedging use for non-residents, tightening offshore rupee contract activity.
- Authorised dealers must deposit a cash reserve with the RBI equal to 20% of the rupee notional amount of each currency derivative contract used to hedge their own balance sheet risk.
- Following these measures and previous weekend announcements, the rupee rebounds 1% on Monday after dropping over 6% year-to-date amid capital outflows and high oil prices.
New curbs on non-deliverable rupee contracts
As reported by Reuters, the Reserve Bank of India said on Monday that banks with units in India's International Financial Services Centre and some primary dealers can now offer non-deliverable rupee derivatives to non-resident users only for hedging, rather than for any purpose.The central bank also requires authorised dealers to maintain a foreign exchange risk reserve for foreign exchange derivative contracts involving the rupee when those contracts hedge the currency risk of their own assets and liabilities. The reserve applies to all rupee currency contracts in which the authorised dealer buys foreign currency against the rupee, and it equals 20% of the rupee equivalent of the notional amount of each contract.
The reserve must be deposited in cash with the RBI every day and remain in place until the contract expires. Non-deliverable derivative contracts are settled in cash, usually in dollars, without any rupees changing hands.
Rupee support and market reaction
The action adds to a series of steps announced since Saturday to support the rupee, which has been falling because of steep oil prices and capital outflows. Reuters reported earlier on Monday that banks have asked the RBI to scrap the 20% cash deposit for foreign exchange derivatives used to hedge current-account exposures and replace it with a flat fee instead.The rupee, after falling more than 6% this year, jumps 1% on Monday following the RBI's weekend announcements. The measures signal tighter oversight of offshore-linked rupee derivatives as policymakers try to steady the currency and manage foreign exchange risks in the banking system.
Our earlier coverage of India’s market close on 12 October 2026 noted that the Nifty 50 fell 0.7% amid persistent selling pressure and cautious investor sentiment tied to global trends and economic indicators. That report also highlighted ongoing corporate activity on the NSE, including new listings, showing that participation continued even as broader macro factors weighed on markets.
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