With the rupee inching closer to the 97 level against the dollar and crude oil above $100 a barrel, the Reserve Bank of India (RBI) has tightened its grip on the rupee derivatives market, introducing measures to strengthen market discipline, curb excessive speculation and bring greater transparency to foreign exchange transactions.

The central bank has announced restrictions on rebooking cancelled foreign exchange derivative contracts, sharply reduced the threshold for transactions without establishing underlying exposure, strengthened documentation requirements and introduced a new Foreign Exchange Risk Reserve (FERR).

Threshold slashed to $5 million

The RBI has slashed the limit for undertaking forex derivative transactions without establishing the existence of the underlying exposure from $100 million to $5 million equivalent across authorised dealers — a 95 per cent reduction. The threshold for exchange-traded currency derivatives involving the rupee has also been cut from $100 million to $5 million across all recognised stock exchanges taken together.

The tighter threshold is meant to reduce the scope for large positions not linked to genuine foreign exchange risks, though it is not a blanket ban on all currency derivatives above $5 million.

Rebooking banned, no double-hedging

The RBI has also moved to prevent repeated cancellation and rebooking of rupee-involving forex derivative contracts. Authorised dealers must not permit users to rebook such a contract if it was cancelled with any authorised dealer after the issuance of the directions. Rolling over contracts at maturity will still be permitted.

The RBI is also strengthening checks to prevent the same underlying exposure from being hedged through multiple authorised dealers. Banks must now obtain and retain an undertaking from users confirming that the same exposure has not been hedged with another authorised dealer.

20% forex risk reserve for banks

Under the new Foreign Exchange Risk Reserve, authorised dealers must maintain a cash reserve with the RBI equal to 20 per cent of the rupee equivalent of each covered contract’s notional amount, for contracts exceeding $2 million equivalent used to hedge current-account exposures. The reserve is a cash requirement on banks, not a fee on customers.

The rupee has faced intense pressure from adverse capital flows, hedging demand and a challenging global environment. On October 9, 2026, the rupee closed at around 96.73 per US dollar, close to its record low. Forex reserves dipped by $12.95 billion to $734.60 billion during the week ended October 2, and the RBI hiked repo rates by 25 bps to 5.50 per cent on October 7 as higher oil prices feed imported inflation.