New RBI Rules for Rupee Derivative Contracts and Risk Reserves
Banks must now limit rupee derivative contracts to hedging and hold a 20% cash reserve with the RBI.
- Document
- Notifications
- Dated
- 12 Oct 2026
- Effective
- October 12, 2026
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- Banks can only offer rupee derivative contracts to non-residents for hedging purposes.
- Banks must maintain a 20% cash reserve for specific foreign exchange contracts.
- The cash reserve must be deposited daily with the Reserve Bank of India.
- These rules apply to all new derivative contracts started after October 12, 2026.
In short
This Reserve Bank of India (RBI) circular updates how banks manage risk for rupee-based derivative contracts, which are financial agreements based on the value of the Indian Rupee.
What has changed
How it worked before
Previously, banks could offer these rupee-based derivative contracts to non-residents for any purpose without restrictions.
What has changed
Banks are now restricted to offering these contracts only for hedging, which is a strategy to reduce financial risk. Additionally, banks must now set aside 20% of the contract value as a cash reserve with the RBI.
Who this affects
Authorised Dealer Category-I banks and Standalone Primary Dealers who handle foreign exchange derivative contracts.
What you should do
If you are a bank official, ensure your systems are updated to restrict new contracts to hedging and calculate the required 20% daily cash reserve for the RBI.
If you do nothing
Failure to comply with these Reserve Bank of India directions may lead to regulatory penalties or enforcement actions under the Foreign Exchange Management Act.
The terms explained
- Hedging
- A strategy used to protect against potential financial losses from price changes.
- Non-deliverable derivative contracts
- Financial agreements where parties settle the difference in value rather than exchanging the actual currency.
- Foreign Exchange Risk Reserve
- A mandatory cash deposit held with the central bank to cover potential risks.
The original document
| Issued by | RBI |
|---|---|
| Document | Notifications |
| Full title | Risk Management and Inter-Bank Dealings |
| Issued on | 12 October 2026 |
| Effective | October 12, 2026 |
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