RBI bars rebooking of cancelled forex hedges, cuts no-proof limit to USD 5 million
Key points
- RBI has barred rebooking of cancelled rupee forex derivatives and cut the no-proof hedging limit from USD 100 million to USD 5 million.
- Exporters, importers and other businesses hedging rupee currency risk with banks or on stock exchanges are affected, along with the banks themselves.
- The directions took effect immediately on 10 October 2026; banks must also take an undertaking that the exposure is not hedged with another bank.
The Reserve Bank of India (RBI) has tightened the rules for businesses that hedge currency risk using foreign exchange derivatives involving the rupee. Under A.P. (DIR Series) Circular No. 25 dated 10 October 2026, banks can no longer let customers rebook a contract cancelled after the directions were issued, and the limit for hedging without establishing the underlying exposure falls from USD 100 million to USD 5 million. The directions came into force with immediate effect.
What has changed
The circular is addressed to Authorised Dealers (banks permitted to deal in foreign exchange) and changes how they apply the Master Direction – Risk Management and Inter-Bank Dealings dated 5 July 2016. RBI says the decisions were taken in view of evolving market conditions.
No rebooking of cancelled contracts. A bank shall not permit users to rebook any foreign exchange derivative contract involving the rupee, whether deliverable or non-deliverable, which has been cancelled with any bank after the issuance of these directions. Banks may continue to permit users to roll over contracts on maturity, subject to the Master Direction.
Lower limits for hedging without proof of exposure.
| Facility | Earlier limit | New limit |
|---|---|---|
| Positions with banks to hedge a contracted exposure without establishing the underlying exposure, across all banks | USD 100 million equivalent | USD 5 million equivalent |
| Positions (long or short) without establishing the underlying exposure, across all currency pairs involving the rupee, combined across all recognised stock exchanges | USD 100 million equivalent | USD 5 million equivalent |
Both limits are measured on notional value outstanding at any point of time.
New undertaking. When a bank offers a rupee forex derivative to hedge a contracted exposure, it must obtain and retain an undertaking from the user that the same underlying exposure has not been hedged with any other bank. Where the exposure is being hedged in parts with more than one bank, the undertaking must clearly show the amounts already booked with the other banks. It can be taken as part of the deal confirmation, and is in addition to any other documents the bank may call for.
The circular makes each bank responsible for ensuring compliance, including the existence of the underlying exposure. Banks must take the necessary documents and keep them for at least two years.
Who is affected
The circular is addressed to banks, but its effect falls on their customers, whom RBI calls users. That includes exporters, importers and companies with foreign currency receivables or payables that hedge rupee currency risk with banks or on recognised stock exchanges. Businesses that relied on the USD 100 million facility to hedge without establishing the underlying exposure are the most directly affected.
What this means for businesses
In practice, this means:
- Cancelling a hedge is now a more final decision. A cancelled contract cannot be rebooked, so treasury teams that cancel and rebook to respond to rate movements will need to change that approach. Rolling over a contract at maturity is still possible.
- Once outstanding positions without documented exposure cross USD 5 million across all banks, businesses should expect to show evidence of the underlying exposure.
- Companies that hedge with more than one bank will need to track what has been booked where, because the undertaking must disclose amounts already booked with other banks.
- The circular does not say how positions above USD 5 million taken earlier under the USD 100 million limit are to be treated. Businesses in that position should confirm with their bank.
Hedging needs differ from one business to another, so finance teams may want to review their hedging policy with their bank and adviser.
Key dates
- 10 October 2026: circular issued; directions in force with immediate effect.
- Ongoing: banks must keep the supporting documents for at least two years.
This update was written with AI from the official source above and automatically fact-checked against it before publishing. It is general information, not professional advice. Check the source, or talk to a Chartered Accountant, before acting on it.