India's RBI caps banks' net open rupee positions and bars NDF offerings
Change
India's RBI capped banks' net open rupee positions and barred nondeliverable forward (NDF) offerings to corporates in onshore forward markets, removing a common hedging route and constraining banks' ability to hold directional dollar exposure.
Why it matters
The rules close an onshore derivatives channel that many corporates used to hedge dollar risk, forcing banks to pare or unwind existing dollar positions. That reduction in NDF liquidity will make it harder to execute large FX hedges onshore and increase reliance on spot or offshore markets, raising near-term rupee volatility.
Implications
- • Authorised dealer banks' FX desks must trim net open rupee positions to comply with the new cap or execute orderly dollar unwinds to avoid regulatory breaches.
- • Corporate treasury teams at non-financial corporates must seek alternative hedging structures or shift hedging to offshore markets because onshore NDFs are no longer available.
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