RBI withdraws April 1 forex derivatives curbs, eases rupee trading rules

The Reserve Bank of India (RBI) on Monday withdrew certain restrictions it had imposed earlier this month on foreign exchange derivatives, partially easing curbs introduced during a bout of sharp rupee volatility.

In a circular on risk management and inter-bank dealings, the central bank said it was withdrawing its April 1 directive, which had tightened rules on forex derivative transactions, including restrictions on non-deliverable contracts and rebooking of cancelled trades.

However, the central bank retained some guardrails, introducing a fresh restriction that bars authorised dealers from undertaking foreign exchange derivative contracts involving the rupee with related parties.

The RBI allowed only two exceptions: cancellation and rollover of existing contracts, and back-to-back transactions with non-related non-resident users in line with its existing master direction on risk management and inter-bank dealings.

The term ‘related parties’ will carry the same meaning as defined under applicable accounting standards, including Ind AS 24 and IAS 24, the circular said.

“These instructions shall be applicable with immediate effect,” the RBI added.

The directions have been issued under provisions of the Foreign Exchange Management Act (FEMA), 1999.

On April 1, the central bank barred authorised dealers from offering non-deliverable derivative contracts involving the rupee to both residents and non-residents.

Banks were, however, allowed to continue offering deliverable derivatives for genuine hedging needs, subject to conditions, including a prohibition on taking offsetting non-deliverable positions.

It had also directed dealers to seek necessary documentation from clients to ensure compliance and prohibited the rebooking of cancelled forex derivative contracts involving the rupee.

The measures came against the backdrop of fluctuations in the domestic currency driven by global factors, including West Asia conflict and firm crude oil prices.

Meanwhile, the rupee on Monday pared initial gains to settle 19 paise lower at 93.10 (provisional) against the US dollar. The unit had opened at 92.73 and moved in a range of 92.70 to 93.24 during the session.

The domestic currency had settled at 92.91 on Friday, after gaining in the previous two sessions.