RBI Tightens Forex Grip on NDFs
The Reserve Bank of India (RBI) has banned rupee non-deliverable forward (NDF) contracts immediately, preventing banks from offering them to clients. This action targets the rupee's recent sharp depreciation and aims to close a loophole that allowed banks to manage client losses following earlier restrictions on open positions.
Broader Deal Curbs and Market Gaps
Authorized dealers are now also barred from rebooking any canceled foreign exchange derivative contracts. These stringent measures are expected to widen the gap between local rupee rates and offshore NDF prices significantly. The RBI previously limited banks' net open rupee positions to $100 million daily. These new rules make it harder for banks and large companies to hedge effectively, a challenge highlighted by Anshul Chandak, head of treasury at RBL Bank.
Forced Unwinding Sparks Loss Fears
Banks must now unwind substantial currency positions by April 10. Estimates suggest gross onshore positions held by domestic and foreign banks total between $30 billion and $40 billion. Reducing these to the new $100 million cap could lead to significant mark-to-market (MTM) losses in the current quarter. Analysts at Jefferies warned that a ₹1 rupee drop against the dollar could cost the banking sector ₹30,000–40,000 crore in one-time losses. Some institutions are seeking regulatory relief, such as grandfathering existing contracts or extending deadlines.
Rupee Weakness and Hedging Pains
The Indian rupee has seen sharp swings, recently trading near an all-time low of Rs 95.22 per dollar on March 30, 2026. The spread between onshore forwards and offshore NDFs jumped to ₹1.35 from around 40 paise the same day, signaling market stress. This wider gap complicates hedging for businesses and investors. Global factors like West Asia tensions and rising oil prices also weigh on the rupee, with some analysts predicting it could hit 100 per dollar if conflict persists.
Regulatory Risk for Banks
The RBI's new rules shift the burden of rupee stability onto banks, introducing operational and financial risks. The forced unwinding by April 10 creates direct MTM loss risk. These measures fundamentally alter onshore-offshore market dynamics, potentially increasing segmentation, transaction costs, and volatility. While aimed at currency defense, the intervention prioritizes domestic control over market arbitrage strategies banks have used. This places greater responsibility on banks for rupee stability, impacting their balance sheets and potentially adding systemic risk.
Outlook Cloudy, Analysts Eye Revisions
The rupee's immediate future is expected to be volatile as markets absorb the RBI's directives. Reduced hedging options and forced position cuts could amplify price swings. Previous analyst forecasts, which predicted USD/INR around 93.89 by quarter-end and 93.09 in 12 months, may need revision due to these new regulatory pressures and ongoing economic challenges. The RBI aims for orderly markets, but the effectiveness of these strict measures against global economic forces will shape the rupee's path ahead.