RBI Bars INR NDFs and Restricts FX Derivative Deals

Circular No. A.P. (DIR Series) Circular No. 03, Dated 01.04.2026

The Reserve Bank of India (RBI) has issued directions imposing restrictions on foreign exchange (FX) derivative transactions by Authorised Dealers (ADs), with immediate effect, to strengthen risk management and curb speculative activities.

1. Restriction on INR Non-Deliverable Derivatives

Authorised Dealers are prohibited from offering INR non-deliverable derivatives to any user.

This move aims to limit exposure to offshore speculative instruments and ensure greater control over currency risk.

2. Disallowance of Rebooking of Cancelled Contracts

The RBI has disallowed the rebooking of cancelled FX derivative contracts.

This prevents misuse of derivative products for speculative gains arising from frequent cancellations and re-entries.

3. Prohibition on Related Party Transactions

Derivative transactions with related parties have been prohibited, ensuring:

• Elimination of potential conflicts of interest
• Prevention of circular or non-arm’s length transactions

4. Permissibility of Deliverable Derivatives

Deliverable FX derivatives may continue to be used for genuine hedging purposes, subject to:

• Compliance with prescribed conditions
• Availability of supporting documentation

5. Effective Date and Applicability

These directions are:

• Effective immediately
• Applicable until further review by the RBI

6. Conclusion

The RBI’s measures reinforce a prudential and risk-sensitive approach to FX derivatives, promoting genuine hedging, transparency, and market discipline, while curbing speculative and related-party exposures.

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