RBI permits deferment of option premium under specific conditions in commercial banking operations, easing short-term liquidity burdens for hedgers.
RBI Permits Deferment of Option Premium for Hedging Instruments
The Reserve Bank of India (Commercial Banks – Miscellaneous) Amendment Directions, 2026, issued on October 7, 2026, amends Sub-section D of Chapter IV of the 2025 Directions to allow deferment of option premium payments in specific hedging contexts. This is applicable where the premium payment timing is structurally linked to cash flows from the underlying exposure.
Deferment is permitted only under documented hedging programs approved by the bank’s risk committee and must not exceed the tenor of the hedged item. The move is designed to support genuine hedging activity, particularly in long-dated export and project finance contracts, where upfront premium outflows may strain liquidity.
Practitioners should verify that client hedging structures meet the criteria for deferment and maintain audit trails justifying timing misalignments. The amendment reflects a nuanced regulatory response to real-sector financing challenges.
Citations
- Reserve Bank of India (Commercial Banks – Miscellaneous) Amendment Directions, 2026