Effective October 2026, RBI mandates a 20% foreign exchange risk reserve for qualifying INR non-deliverable derivatives exceeding USD 2 million. The reserve must be maintained in daily cash deposits to curb speculative trading by non-residents.
Stricter Safeguards for INR Derivatives
The Reserve Bank of India (RBI) has introduced a mandatory 20% foreign exchange risk reserve requirement for certain INR-denominated derivative contracts, particularly non-deliverable forwards (NDFs), where the transaction size exceeds USD 2 million. This measure, aimed at non-resident entities, mandates daily cash deposit maintenance of the reserve amount with authorized dealer (AD) banks.
The directive restricts the use of such derivatives solely to hedging permissible underlying exposures, eliminating speculative trading opportunities. Entities must also submit regular reporting through AD banks to confirm compliance with the risk reserve and end-use criteria. These changes reinforce the RBI’s stance on capital account integrity and foreign exchange market stability.
Legal advisers must now conduct enhanced due diligence on cross-border derivative structures involving INR. The rule has immediate implications for foreign investors, hedge funds, and treasury operations of multinational corporations engaged in INR forex risk management.