India's RBI caps banks' rupee net open positions and bars nondeliverable forward sales to corporates
Change
India's RBI capped banks' net open rupee positions in onshore forward markets and barred nondeliverable forward (NDF) contracts for corporates, triggering an intraday rupee rebound of about 188 paise.
Why it matters
Banks are now required to cut onshore rupee exposure to comply with the new caps, constraining their ability to hold or roll large open positions. Corporate hedging via NDFs is no longer available, forcing treasury teams to arrange alternative onshore hedges or leave currency exposure unprotected.
Implications
- • Authorised dealer banks' foreign-exchange (FX) desks must reduce net open rupee positions and unwind dollar exposures to comply with the RBI cap, or they will breach RBI limits.
- • Corporate treasury teams at non-financial firms must replace nondeliverable forward hedges with permitted onshore instruments before executing foreign-exchange (FX) contracts or accept uncovered currency exposure.
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Source
Topics
Regulatory Actions Markets Banking Regulation Financial Services