The Reserve Bank of India issued A.P. (DIR Series) Circular No. 27, RBI/2026-27/293, dated 12 October 2026, on risk management and inter-bank dealings. The directions apply to foreign exchange derivative contracts undertaken after their issuance.
Authorised Dealer Category-I banks with an operating IFSC Banking Unit and standalone primary dealers authorised as Authorised Dealer Category-III were previously permitted to offer INR-involving non-deliverable derivative contracts to non-resident users without restrictions on purpose. The circular provides that authorised dealers shall henceforth offer such contracts to a non-resident user only for hedging.
Separately, the RBI requires an authorised dealer to maintain a Foreign Exchange Risk Reserve (FERR) for foreign exchange derivative contracts involving INR which it undertakes to hedge currency risk of its own assets and liabilities, where the dealer purchases foreign currency against INR. The reserve is 20% of the INR equivalent of the notional amount of each covered derivative contract and must be maintained as cash with the RBI daily until the contract terminates.
This circular addresses dealers’ own hedging contracts. The distinct FERR requirements for specified dealer–user transactions were issued under A.P. (DIR Series) Circular No. 26 dated 10 October 2026. The applicability conditions of the two circulars should not be conflated. Authorised dealers should review their treasury dealing permissions and covered hedging positions.