The Reserve Bank of India has updated norms for Authorised Dealers on foreign exchange risk reserve to ensure orderly market functioning. The changes include revised risk weightings and enhanced reporting requirements under the Master Direction on Risk Management and Inter-Bank Dealings.
RBI Amends Foreign Exchange Risk Reserve Framework
The Reserve Bank of India (RBI) issued Circular No. 26 (A.P. DIR Series) on October 10, 2026, amending the Master Direction on Risk Management and Inter-Bank Dealings dated July 5, 2016. The amendments introduce changes to the foreign exchange risk reserve requirements for Authorised Dealers (ADs), aimed at promoting stability in the foreign exchange market amid evolving global financial conditions.
Under the revised framework, ADs are required to maintain higher risk-weighted provisions for open foreign exchange positions beyond prescribed limits. The RBI has also clarified methodologies for calculating aggregate open positions and introduced enhanced disclosures for derivatives exposure. These measures are intended to strengthen risk management practices and prevent excessive volatility in forex markets.
Practitioners must ensure that their client banks comply with the updated reporting and reserve maintenance norms by the next review cycle. The changes reflect RBI’s ongoing focus on macroprudential regulation and call for immediate internal policy revisions by ADs handling forex transactions.
Citations
- Master Direction - Risk Management and Inter-Bank Dealings (July 5, 2016, as amended)