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RBI ReportPublished 16 Oct 2026Read time 1 minEffective 10 Oct 2026

RBI Tightens Rules for Foreign Currency Hedging Contracts

RBI has tightened rules for businesses using foreign currency hedging contracts from 10 October 2026.

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For information only. Not financial advice. Verify with official sources before taking any action.

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What happened

The Reserve Bank of India (RBI) has issued two new circulars on 10 October 2026 changing how businesses can use foreign exchange derivative contracts — these are financial tools used to protect against currency rate changes. Businesses can no longer rebook a cancelled currency contract, and the limit for entering such contracts without proving an underlying business need has been sharply cut from USD 100 million to USD 5 million. A new cash reserve called the Foreign Exchange Risk Reserve (FERR) — money that must be kept with the RBI — of 20% of the contract value is now required for contracts above USD 2 million.

Why it matters

The RBI introduced these measures to bring more discipline and transparency to India's foreign exchange market. Speculative or excessive use of currency hedging tools can create instability in the rupee's exchange rate, which ultimately affects prices of imported goods, fuel, and household costs for ordinary Indians. Tighter rules aim to ensure only genuine business needs drive currency derivative activity.

What to check

  • →Check with your company's finance team if your business uses foreign currency contracts — new documentation and reserve requirements may apply from 10 October 2026.
  • →Find out if your business has any cancelled foreign exchange contracts that you were planning to rebook, as this is no longer permitted.
  • →Ask your bank or Authorised Dealer — a bank officially permitted by RBI to deal in foreign currency — how the new USD 5 million threshold affects your existing arrangements.
  • →Consider reviewing any exchange-traded currency positions on stock exchanges if your business trades currency futures or options.
  • →Look at whether your business needs to set aside additional cash to meet the new 20% Foreign Exchange Risk Reserve requirement for contracts above USD 2 million.

This is general information, not financial advice. Check your own position with your lender or an adviser.

What this means for you

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