The RBI has modified the foreign exchange risk reserve framework to promote market stability, requiring authorised dealers to maintain dynamic provisioning based on open derivative positions.
Revised FX Risk Reserve Norms to Ensure Market Order
In A.P. (DIR Series) Circular No. 26 dated October 10, 2026, the RBI outlined updated requirements under the Foreign Exchange Risk Reserve framework. The directive aims to ensure orderly functioning of foreign exchange markets by mandating dynamic reserve contributions from authorised dealers based on open positions in FX forwards and derivatives.
The policy revision follows the ongoing review of the Master Direction on Risk Management and Inter-Bank Dealings. While the full operational details were truncated in the release, previous iterations indicate that risk reserve requirements are calibrated to market volatility and tenor of contracts. Dealers are expected to factor in these reserves when pricing client derivatives.
Legal practitioners should note that non-compliance may attract supervisory action under Section 47 of the Banking Regulation Act, 1949. Institutions must align their treasury risk models with the updated reserve computation methodology.