RBI has imposed new safeguards on cancellation and rebooking of forex derivatives to curb speculative activity, requiring ADs to ensure genuine underlying exposure.
Stricter Controls on Forex Derivative Transactions
On October 10, 2026, the Reserve Bank of India issued Circular No. 25 under the Master Direction on Risk Management and Inter-Bank Dealings, introducing tighter norms for the cancellation and rebooking or rollover of foreign exchange derivative contracts. Authorised Dealers (ADs) are now required to verify the genuineness of the underlying exposure before permitting any such transactions.
This measure is designed to prevent misuse of forex derivatives for speculative purposes under the guise of hedging. The RBI has emphasized that rebookings must be linked to demonstrable changes in the original exposure, and documentation must be retained to establish compliance during audits. ADs are also expected to implement enhanced monitoring systems to detect pattern-based abuse.
The revision signals heightened regulatory scrutiny over forex risk management practices. Practitioners advising corporates or financial institutions must ensure that all rollovers are supported by documentary evidence of genuine trade or investment exposure to avoid regulatory censure.
Citations
- Master Direction - Risk Management and Inter-Bank Dealings, July 05, 2016