RBI Tightens Rules on Rebooking of Cancelled Forex Derivatives

RBI Bars Rebooking of Cancelled INR Derivative Contracts

The Reserve Bank of India has tightened regulations governing the rebooking of cancelled Indian rupee foreign exchange derivative contracts. As of 14 October 2026, market participants are prohibited from re-entering into identical or similar derivative contracts immediately after cancelling existing ones, a practice previously used to extend tenors without actual settlement.

The RBI has also reduced the threshold for mandatory hedging documentation: entities with unhedged exposure exceeding USD 5 million must now provide declarations confirming the commercial rationale and underlying exposure. Authorized Dealers are required to verify and retain these declarations as part of their Know Your Customer (KYC) and anti-misuse safeguards. These measures target round-tripping and synthetic extension of derivative positions that bypass regulatory scrutiny.

Implications for Corporate Treasuries and AD Banks

Indian corporates with ongoing foreign currency exposure must now plan hedging strategies more carefully, ensuring that cancellations do not trigger non-compliance. AD banks face increased due diligence responsibilities, including monitoring for patterns indicative of rebooking abuse. The changes reinforce the RBI’s stance that derivatives should serve genuine risk mitigation, not speculative or tenor-extension purposes, and violations may lead to FEMA enforcement actions.