The Reserve Bank of India (RBI) has expanded its foreign exchange risk reserve (FERR) requirement to cover rupee derivative contracts used by authorised dealers to hedge currency risks arising from their own assets and liabilities.
Unlike the existing rules for customer transactions, which apply above a $2 million notional threshold, the revised directions prescribe no minimum contract value.
The move forms part of the central bank's broader efforts to contain dollar demand and support the rupee amid elevated crude oil prices and foreign capital outflows.
20% Cash Reserve For Rupee Derivative Contracts
Under the revised framework, authorised dealers must maintain a reserve equal to 20% of the rupee equivalent of the notional value of eligible derivative contracts involving purchases of foreign currency against the rupee.
The amount must be deposited with the RBI in cash every day and maintained until the relevant contract ends.
Existing FERR provisions cover derivative transactions undertaken with customers to hedge current account exposures exceeding $2 million.
The central bank has also prohibited attempts to bypass this threshold by dividing transactions among multiple authorised dealers.
Separately, the RBI has restricted non-deliverable derivative contracts (NDDCs) involving the rupee offered to non-residents exclusively to hedging purposes.
Previously, eligible Category-I banks operating through International Financial Services Centre (IFSC) Banking Units and authorised Category-III dealers could offer these instruments without restrictions on their intended use.
The revised requirements apply to foreign exchange derivative contracts entered into after the directions were issued.
Tightens Dollar Demand Rules
The latest measures follow additional restrictions announced over the weekend.
On Saturday, the RBI introduced a special facility to meet the daily dollar requirements of state-run oil marketing companies.
Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation can access the window, which became operational on Monday.
The facility aims to reduce their dependence on spot-market dollar purchases.
The central bank also lowered the threshold for hedging contracted exposures without establishing underlying exposure from $100 million to $5 million.
It reduced the corresponding single position limit across rupee currency pairs and recognised exchanges.
Additionally, users cannot rebook cancelled derivative contracts and must confirm that the same exposure has not been hedged elsewhere.
