3 min readApr 20, 2026 09:32 PM IST
The Reserve Bank of India (RBI) on Monday partially eased curbs on certain rupee derivative trades that had been introduced earlier this month to prevent the currency from hitting successive record lows.
The central bank has allowed authorised dealers, which include banks and financial institutions, to once again offer a type of currency contract called non-deliverable forwards (NDFs) to both Indian residents and overseas users. It has removed the ban on users rebooking foreign exchange derivative contracts that were cancelled after April 1.
However, the RBI’s notification makes it clear that the authorised dealers still cannot enter into rupee-related foreign exchange derivative contracts with their related parties. The only exceptions are cancelling or rolling over contracts that already exist, and transactions done with unrelated non-resident users on a back-to-back basis.
“It has been decided that authorised dealers shall not undertake any foreign exchange derivative contract involving the Indian rupee with their related parties except for the following: cancellation and rollover of existing contracts, and transactions undertaken with non-related non-resident users on a back-to-back basis,” the RBI said in a notification.
NDFs, which are typically traded outside India in financial hubs such as Singapore, Hong Kong, London or Dubai, allow participants to bet on the rupee’s direction without actual delivery of the currency. An NDF is a derivative contract where two parties agree on a future exchange rate for the rupee, but settle the difference in cash, usually in US dollars.
The move had then boosted the worn out rupee, which had fallen below the 95 level against the dollar to 93.10, a sharp rally of Rs 1.73 next day.
On Monday, the rupee pared early gains to settle 21 paise lower at 93.12 against the US dollar, pressured by heightened West Asia tensions that pushed demand for the greenback and kept crude prices firm.
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On April 1, the RBI directed authorised dealer 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 these guidelines, banks and other authorised dealers were prohibited from entering into or facilitating any non-deliverable derivative transactions linked to the rupee. It was 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 regulator 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 was expected to prevent misuse of cancellation and rebooking practices that could otherwise be employed to circumvent regulatory intent.
Additionally, the guidelines introduced strict restrictions on dealings with related parties. Authorised dealers were expressly prohibited from undertaking foreign exchange derivative transactions with entities classified as related parties.
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In March, the RBI instructed banks to limit their net open exposure to the currency in the foreign exchange market to $100 million by the end of each day. Authorized dealers were asked to comply with this rule by April 10.
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