RBI issues fresh guidance under Master Direction on Risk Management to strengthen foreign exchange risk reserve mechanisms. Focus on market discipline and orderly forex operations amid volatile global conditions.
RBI Enhances Forex Risk Reserve Framework
In a circular dated October 10, 2026 (A.P. DIR Series No. 26), the Reserve Bank of India reinforced the Foreign Exchange Risk Reserve framework under the existing Master Direction on Risk Management and Inter-Bank Dealings (July 5, 2016, as amended). The update aims to ensure orderly functioning of the foreign exchange market amid global volatility and changing capital flow dynamics.
While the full details of reserve ratios or tenor-based classifications are not specified in the public summary, the circular signals a proactive stance on macroprudential oversight of forex exposures. The RBI has consistently used risk reserve requirements to moderate speculative positions and manage systemic risk in currency markets.
Authorised dealers are expected to comply with revised or reaffirmed reserve deposit obligations on specific forex derivative positions. These measures are part of the central bank’s broader toolkit to manage external sector vulnerabilities and maintain exchange rate stability.
For legal and compliance teams in banking institutions, this serves as a reminder to stay updated on dynamic forex risk reserve requirements. Internal monitoring systems should be calibrated to reflect any changes in risk-weighted reserve obligations for customer and proprietary trading books.