RBI’s New Forex Hedging Rules Explained

Along with the 20% Foreign Exchange Risk Reserve, RBI’s A.P. (DIR Series) Circular No. 25 of 10 October 2026 tightened how companies hedge rupee exposure.

Three changes in plain words

Rule	Before	Now
Hedge without proving underlying exposure (OTC, all banks together)	Up to USD 100 mn	Up to USD 5 mn
Same limit on exchange-traded INR currency derivatives	USD 100 mn	USD 5 mn
Rebooking a cancelled INR derivative contract	Allowed (with conditions)	Not allowed; rollover on maturity still allowed

Users must also give an undertaking that the same exposure is not hedged with another bank.

Key terms

Underlying exposure: a real trade or financial transaction (import bill, loan) creating currency risk.
Rebooking vs rollover: rebooking re-creates a cancelled contract; rollover extends a maturing one.
Authorised Dealer: a bank licensed under FEMA, 1999 to deal in foreign exchange.

Why RBI did it

RBI said the measures strengthen market discipline and keep the forex market orderly while the rupee is under pressure — limiting speculative dollar demand.

Quick MCQ

New limit for hedging without proving exposure? USD 5 million.

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