RBI Amends Derivative Contract Rollover Rules

RBI Amends Derivative Contract Rollover Rules

The Reserve Bank of India (RBI), through Circular No. 25 dated October 10, 2026, has introduced amendments to the Master Direction on Risk Management and Inter-Bank Dealings (2016), specifically addressing the cancellation and rebooking—or rollover—of foreign exchange derivative contracts. These changes are aimed at curbing potential misuse, such as round-tripping of funds, and enhancing transparency in forex derivative transactions.

Under the revised guidelines, Authorised Dealer (AD) Category-I banks must ensure that any request for cancellation and subsequent rebooking of a derivative contract is supported by a fresh underlying exposure. The circular mandates that such transactions be subjected to rigorous internal audit checks and documented with justification for the rollover. Additionally, ADs are required to report exceptional cases to the RBI on a half-yearly basis, ensuring regulatory oversight.

"An Authorised Dealer shall not allow cancellation and rebooking of a forward contract unless the customer demonstrates a genuine change in underlying exposure,"

the circular states, reinforcing the principle of substance over form in derivative dealings. This aligns with international best practices and strengthens India’s forex risk management framework.

For legal practitioners, these amendments necessitate a closer review of client hedging activities, especially in cross-border transactions involving deferred payments or adjustable tenors. Banks must also update their internal compliance manuals and train staff on the heightened scrutiny now expected by the regulator. The changes reflect the RBI’s continued focus on financial stability and integrity in the derivatives market.