RBI Forex Hedging Rules 2026: Crucial Guide for Businesses

The RBI forex hedging rules 2026 have introduced changes that businesses with foreign-currency exposures should review when planning currency-risk management.

On 10 October 2026, RBI issued measures concerning foreign exchange derivatives involving the Indian rupee. These address the rebooking of cancelled contracts, thresholds for specified positions without establishing underlying exposure, and a Foreign Exchange Risk Reserve for certain transactions. The measures are particularly relevant to importers, exporters and businesses that use forward or other eligible derivative contracts to manage currency risk.

RBI Forex Hedging Rules 2026: Why do businesses use forex hedging?

A business with a foreign-currency payment or receipt may face uncertainty if the exchange rate changes before settlement. For example, an Indian importer that must pay a US dollar invoice in three months could face a higher rupee cost if the rupee weakens. A permitted hedging contract may help manage that exposure, subject to its terms and applicable RBI rules. Hedging does not remove every commercial risk. The cost, maturity, underlying exposure and treatment on cancellation all matter.

1. Restrictions on rebooking cancelled contracts

Under A.P. (DIR Series) Circular No. 25, an authorised dealer shall not permit a user to rebook an INR-linked foreign exchange derivative contract that has been cancelled with any authorised dealer after the directions were issued.

The circular distinguishes this from a rollover on maturity, which may continue subject to the applicable Master Direction. Businesses should therefore discuss the treatment with their bank before cancelling or modifying a hedge.

Practical point: Before booking a hedge, consider the expected timing of the underlying payment or receipt, possible changes to the transaction and the consequences of early cancellation.

2. Threshold reduced for specified positions without establishing underlying exposure

RBI reduced the relevant threshold from USD 100 million to USD 5 million equivalent for the facilities specified in Circular No. 25. The circular addresses distinct facilities, including positions across authorised dealers for hedging contracted exposure and positions across recognised stock exchanges in INR currency pairs. The applicable limits and aggregation rules must be read in their respective contexts.

This should not be described as a blanket prohibition on hedging above USD 5 million. Rather, the change concerns the specified threshold for taking positions without having to establish the existence of the underlying exposure. The applicable documentation and other conditions remain important.

3. Additional undertaking and documentation

For an INR-linked derivative offered to hedge a contracted exposure, the authorised dealer must obtain and retain an undertaking concerning whether the same underlying exposure has been hedged with another authorised dealer. Where an exposure is hedged in parts with multiple dealers, the undertaking should indicate the amounts already booked with other authorised dealers, as required by the circular.

Businesses should maintain a clear internal record of the underlying invoice, contract or other exposure; amount and currency hedged; maturity date; bank or authorised dealer used; any portion hedged with another dealer; and cancellation, rollover and settlement details. A central register can help treasury teams avoid duplication and respond to documentation requests.

4. Foreign Exchange Risk Reserve for specified transactions

Under A.P. (DIR Series) Circular No. 26, authorised dealers must maintain a Foreign Exchange Risk Reserve, or FERR, for specified INR-linked forex derivative contracts. The circular describes the relevant scope as contracts with a notional value exceeding USD 2 million equivalent, undertaken to hedge current-account transactions, where the user is purchasing foreign currency against Indian rupees.

The reserve is specified at 20% of the INR equivalent of the contract’s notional amount, to be maintained by the authorised dealer with RBI as prescribed. The circular also addresses attempts to circumvent the requirement through multiple transactions.

Important distinction: The circular places the reserve-maintenance obligation on the authorised dealer. It should not be described as a universal rule requiring every importer to deposit 20% directly with RBI. The commercial effect on a customer’s pricing or collateral should be confirmed with the bank.

RBI issued FAQs on the reserve on 15 October 2026. Businesses should consider the circulars and FAQs together and check for any subsequent clarification before entering a transaction.

A practical example

Assume an Indian importer has a genuine USD payment obligation under an import contract and wants to hedge the payment. The treasury team should identify the amount and expected payment date, then ask its authorised dealer which hedging products are available; what evidence of the underlying transaction is required; whether the proposed contract is within the FERR framework; the quoted cost and any bank collateral; and what happens if the payment is delayed or the contract is cancelled.

The answers will depend on the transaction and the bank’s application of current RBI directions. Businesses can explore forex and outward remittance services and, where treasury records and financial reporting need a coordinated review, accounting and virtual CFO services.

Frequently Asked Questions

1. Can a cancelled INR-linked forex derivative contract be rebooked? Circular No. 25 restricts rebooking of contracts cancelled after the directions were issued. The exact facts should be discussed with the authorised dealer.

2. Is a rollover the same as cancellation and rebooking? No. The circular separately permits rollover on maturity, subject to the applicable Master Direction.

3. Is the USD 5 million threshold an absolute cap on all forex hedging? No. It relates to specified facilities for taking positions without establishing the underlying exposure. Other requirements and documentation may apply.

4. Must every importer deposit 20% with RBI? No. The specified reserve obligation is placed on authorised dealers for contracts within the circular’s scope. A customer should ask the bank about the commercial terms of its transaction.

Conclusion

The October measures make it important for businesses to plan hedges alongside their underlying contracts and maintain a clear record of exposures across banks. Before booking, cancelling or rolling over a transaction, businesses should obtain confirmation of the applicable treatment and costs from their authorised dealer.

References: RBI A.P. (DIR Series) Circular Nos. 25 and 26 dated 10 October 2026, Circular No. 27 dated 12 October 2026 and subsequent FERR FAQs. The official RBI PDF for Circular No. 26 may display a verification page; the Moneycontrol report provides supporting news context.