Banks Push RBI to Revise Forex Rules Amidst Rupee Pressure

In a bid to support the weakening rupee, banks in Mumbai are calling on the Reserve Bank of India to amend recent forex regulations. They are particularly focused on the 20% cash deposit requirement for hedging current-account exposures, suggesting a flat fee instead. This move comes as the rupee faces pressure from rising oil prices and capital outflows. Economists estimate significant liquidity could be affected, and banks are concerned about the implications of a $2 million threshold for hedging transactions. The outcome of these discussions could have a substantial impact on the financial landscape in India.

By Narendra Chaudhary Oct 12, 2026, 21:49 IST

Mumbai Banks Seek Changes to RBI Forex Regulations

Mumbai: Financial institutions are urging the Reserve Bank of India (RBI) to reconsider a significant measure introduced recently to stabilize the rupee. According to four sources familiar with the matter, banks have reached out to the central bank via a forex industry association, requesting the elimination of a rule that mandates a 20% cash deposit with the RBI for foreign exchange derivatives used to hedge current-account exposures. The RBI's recent measures, announced over the weekend, aim to mitigate corporate demand for forward dollars, which has been exerting downward pressure on the rupee amid rising oil prices and capital flight.

In response to these regulatory changes, the rupee appreciated by 1% on Monday. The measures also included redirecting the dollar demand of oil companies away from the spot market. Banks have suggested that the RBI replace the 20% deposit requirement with a flat fee for companies hedging current-account exposures through forward dollar transactions or other derivatives. They argue that this adjustment would increase hedging costs without restricting rupee liquidity in banks' treasury operations.

Economists from Citi have projected that approximately 600 billion to 700 billion rupees (around $6.27 billion to $7.31 billion) in liquidity could be absorbed, even if there is a significant reduction in importer hedging. A banker who participated in a recent meeting of the Foreign Exchange Dealers' Association of India indicated that banks would likely pass on these costs to their clients. "Instead of the 20% reserve, directly imposing a higher fee, perhaps in paisa terms, would eliminate much of the friction," the banker noted.

Additionally, banks are advocating for the removal of the $2 million threshold that triggers the deposit requirement, cautioning that it may lead companies to divide hedges into smaller transactions. Bankers expressed concerns about the challenges of monitoring such practices, as they may not be able to question clients who engage in multiple smaller transactions. Furthermore, lenders are seeking clarification on whether the 20% deposit requirement applies to hedges against interest payments on foreign-currency loans. While the current regulations do not encompass hedging related to principal repayments for overseas loans, banks are requesting confirmation on whether interest payments will also be exempt.