**Executive Summary**
This document outlines revised directions for foreign exchange dealings by Authorised Persons. It introduces greater flexibility for hedging, balance sheet management, and market-making. Key updates include revised reporting formats for net open position limits, with specific details provided in Annexes I and II.
**Key Points / Main Content**
**Permitted Products / Transactions / Venues**
* **OTC Transactions:** Authorised Dealers can undertake foreign exchange transactions with other Authorised Dealers and overseas entities for hedging, balance sheet management, market-making, and proprietary positions. This includes deposit placements and borrowings as per specific regulations.
* **Non-Deliverable Derivative Contracts (NDDCs):** Authorised Dealers can engage in NDDCs involving INR with other Authorised Dealers and overseas entities, subject to conditions regarding Authorised Dealer Category-I banks having operating IBUs, or transactions being undertaken by eligible subsidiaries/joint ventures. These can be cash-settled in INR or foreign currency.
* **Electronic Trading Platforms (ETPs):** Transactions are permitted on ETPs authorised by the Reserve Bank, including those outside India, provided the ETP operator is regulated by a financial market regulator that is a member of CPMI or IOSCO, and specific conditions for INR transactions are met.
* **Exchange Traded Transactions:** Authorised Dealers can undertake permitted exchange traded currency derivative (ETCD) contracts on Recognised Stock Exchanges in India and regulated exchanges in IFSC. Transactions not involving INR can be undertaken on overseas exchanges if the exchange is in a FATF member country and regulated by a CPMI/IOSCO member regulator.
**Hedging of Gold Prices**
* Designated banks under the Gold Monetization Scheme and banks allowed to enter forward gold contracts can hedge gold price risk using exchange-traded and OTC products in overseas markets. The net receipt of premium for options involving products should be ensured to be zero.
**Foreign Currency Accounts and Investments Overseas**
* Authorised Dealers, with Board approval, can utilize surplus foreign currency funds for overnight placements, reverse repos up to one year, investments in overseas money market/debt instruments up to one year, and lending in INR and foreign currency as per regulations. Un-deployed FCNR (B) funds can be invested in long-term overseas debt instruments with a residual maturity not exceeding the underlying FCNR (B) deposit maturity.
**Overseas Foreign Currency Borrowing by Authorised Dealers**
* **Authorised Dealer Category-I Banks:** Can borrow in foreign currency from specific sources, subject to limits related to Tier I capital or USD 10 million, whichever is higher. Borrowings exceeding this limit require prior Reserve Bank approval. Certain borrowings, such as for export credit and raising capital, are outside the general limit.
* **Standalone Primary Dealers (Authorised as AD Category-III):** May borrow in foreign currency from permitted sources and avail overdrafts, subject to limits prescribed in the Reserve Bank of India (Standalone Primary Dealers) Directions.
**Governance and Risk Management**
* Authorised Dealers must frame a foreign exchange dealings policy, including a net overnight open position (NOOP) limit, to be communicated to the Reserve Bank. This limit should not exceed 25% of the total capital and is aggregate for all branches. The Reserve Bank may prescribe a specific limit for net open position involving Rupee as one of the currencies.
**Market Timings**
* Market timings for customer and inter-bank foreign exchange transactions are to be specified by the Reserve Bank. Transactions beyond onshore market hours are permitted with users and other Authorised Dealers. ETCD transaction timings are prescribed by SEBI in consultation with the Reserve Bank.
**Impact Analysis**
**Authorised Persons (Authorised Dealer Category-I banks and Standalone Primary Dealers)**
* **Impact:** Increased flexibility in foreign exchange dealings, including hedging, balance sheet management, and market-making. Revised reporting requirements for net open position limits. Potential for new product and venue access.
* **Action Required:** Review and understand the revised instructions and formats. Update internal policies and risk management frameworks. Communicate NOOP limits to the Reserve Bank.
**Reserve Bank of India (RBI)**
* **Impact:** Enhanced oversight and regulatory control over foreign exchange dealings. Need to monitor compliance with revised regulations and reporting formats.
* **Action Required:** Implement and oversee the new directions. Potentially prescribe specific limits for NOP-INR.
**Users of Foreign Exchange Services**
* **Impact:** Potentially benefit from increased market liquidity and a wider range of hedging and market-making products offered by Authorised Dealers.
* **Action Required:** No direct action required by this document, but awareness of potential changes in offerings by Authorised Persons may be beneficial.
Key Entities Referenced
Foreign Exchange Management Act (FEMA), 1999: The primary legislation governing foreign exchange management in India, under which various regulations and directions are issued.
Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000: Specific regulations under FEMA governing derivative contracts related to foreign exchange.
Master Direction – Risk Management and Inter-Bank Dealings: A comprehensive set of instructions providing a regulatory framework for authorized persons and inter-bank foreign exchange transactions.
Reserve Bank of India Act, 1934: The act that empowers the Reserve Bank of India, including its role in regulating financial markets and issuing directions.
Gold Monetization Scheme, 2015: A scheme that designates banks to facilitate hedging of gold price risk.
RESERVE BANK OF INDIA
FINANCIAL MARKETS REGULATION DEPARTMENT
9th FLOOR, CENTRAL OFFICE,
FORT, MUMBAI 400 001
To
All Authorised Persons
Madam / Sir,
Foreign Exchange Dealings of Authorised Persons – Draft
Please refer to the Foreign Exchange Management (Foreign Exchange Derivative
Contracts) Regulations, 2000 dated May 03, 2000 (Notification No. FEMA.25/RB-2000
dated May 03, 2000), as amended from time to time and the instructions contained in Part
A (Section III) and Part C of the Master Direction – Risk Management and Inter-Bank
Dealings dated July 05, 2016, as amended from time to time (hereinafter referred as the
Master Direction).
2. The regulatory framework governing the facilities for Authorised Persons and inter-bank
foreign exchange transactions contained in Part A (Section III) and Part C of the Master
Direction have been reviewed and refined to provide greater flexibility to Authorised
Persons to deal in products and undertake foreign exchange transactions for hedging their
exposures, balance sheet management and market-making as well as to ease reporting
obligations. The revised instructions are enclosed herewith in Annex I. The format for
reporting of net open position limits has also been updated. The revised format is placed
at Annex II.
3. For the purpose of this circular, Authorised Persons shall mean Authorised Dealer
Category-I banks and Standalone Primary Dealers authorised as Authorised Dealer
Category-III under Section 10 (1) of the Foreign Exchange Management Act (FEMA),
1999.
4. The Directions contained in this circular have been issued under Sections 10(4) and
11(1) and 11(2) of the FEMA, 1999 and Section 45W of the Reserve Bank of India Act,
1934 and are without prejudice to permissions/ approvals, if any, required under any other
law.
Yours faithfully,
(Dimple Bhandia)
Chief General Manager
1Annex I
FOREIGN EXCHANGE DEALINGS OF AUTHORISED DEALERS
1. Permitted Products / Transactions / Venues
1.1 OTC transactions
(i) An Authorised Dealer may undertake the following foreign exchange transactions with
other Authorised Dealers and with its overseas branches / overseas entities / IFSC
Banking Units (IBUs) / Offshore Banking Units (OBUs) in Special Economic Zones, for the
purpose of hedging its exposures, balance sheet management, market-making and
proprietary positions.
(a) Foreign exchange transactions permitted to be undertaken between an Authorised
Dealer and an user.
(b) Placing and accepting deposits in foreign currency as per Foreign Exchange
Management (Deposit) Regulations, 2016 (Notification No. FEMA 5(R)/2016-RB
dated April 01, 2016), as amended from time to time.
(c) Borrowing and lending in foreign currency as per Foreign Exchange Management
(Borrowing and Lending) Regulations, 2018 (Notification No. FEMA 3(R)/2018-RB
dated December 17, 2018), as amended from time to time.
(ii) An Authorised Dealer may undertake non-deliverable derivative contracts (NDDCs)
involving INR with other Authorised Dealers and with overseas entities / IBUs / OBUs in
Special Economic Zones either directly or on a back-to-back basis through their overseas
branches (in case of foreign banks operating in India, through any branch of the parent
bank), IBUs, overseas wholly owned subsidiaries and overseas joint ventures, subject to
the following conditions:
(a) NDDCs involving INR can be undertaken by an Authorised Dealer Category-I bank,
subject to the condition that the Authorised Dealer Category-I bank (or its non-
resident parent bank) has an operating IBU;
(b) Such transactions may be undertaken by the wholly owned subsidiary / joint
venture of Authorised Dealers incorporated in India provided the wholly owned
subsidiary / joint venture is a banking entity; and
(c) Such transactions may be cash-settled in INR or any foreign currency.
(iii) An Authorised Dealer may undertake foreign exchange derivative contracts and
foreign currency interest rate derivative contracts on electronic trading platforms (ETPs)
iauthorised by the Reserve Bank in terms of the Master Direction - Reserve Bank of India
(Electronic Trading Platforms) Directions, 2025, dated June 16, 2025, as amended from
time to time.
(iv) An Authorised Dealer may undertake transactions on ETPs outside India provided the
ETP operator is incorporated/set up in a country which is a member of the Financial Action
Task Force (FATF) and the ETP or the transaction is regulated by a financial market
regulator that is a member of the Committee on Payments and Market Infrastructures
(CPMI) or the International Organization of Securities Commissions (IOSCO).
Provided that in respect of transactions involving INR :
(a) Authorised Dealers transact only with non-residents on such ETPs; and
(b) The operator of the offshore ETP disseminates information relating to transactions
involving INR undertaken on the ETP on its website.
1.2 Exchange traded transactions
(i) An Authorised Dealer may undertake permitted exchange traded currency derivative
(ETCD) contracts on the Recognised Stock Exchanges in India; and on regulated
exchanges in the IFSC, in terms of A.P. (DIR Series) Circular No.17 on “Introduction of
Rupee derivatives at International Financial Services Centres (IFSC)” dated January 20,
2020, as amended from time to time, as may be applicable.
(ii) An Authorised Dealer may undertake transactions not involving INR on overseas
exchanges provided that the overseas exchange is located in a country which is a member
of the FATF and is regulated by a financial market regulator that is a member of the CPMI
or the IOSCO.
2. Hedging of Gold Prices
A designated bank under the Gold Monetization Scheme, 2015 (Notification No. Master
Direction No.DBR.IBD.No.45/23.67.003/2015-16 dated October 22, 2015), as amended
time to time, and a bank which is allowed to enter into forward gold contracts with its
constituents in India in terms of the directions issued by the Department of Regulation,
Reserve Bank of India, may hedge its price risk of gold (including the positions arising out
of inter-bank gold deals) using exchange-traded and OTC hedging products in overseas
markets. While using products involving options, the bank may ensure that there is no net
receipt of premium, either direct or implied.
ii3. Foreign currency accounts and investments in overseas markets
An Authorised Dealer may, subject to policy approved by its Board of Directors (or
equivalent forum), utilize the surplus funds in its foreign currency accounts for the following
purposes:
(i) Overnight placements;
(ii) Reverse repo with maturity of up to one year. Overseas debt instruments issued by a
foreign state shall be the eligible securities for such transactions;
(iii) Investment in overseas money market instruments and / or debt instruments issued
by a foreign state with original or residual maturity of up to one year;
(iv) Lending in INR and foreign currency in terms of the Foreign Exchange Management
(Borrowing and Lending) Regulations, 2018 (Notification No. FEMA 3(R)/2018-RB dated
December 17, 2018), as amended from time to time, and directions issued by the
Department of Regulation, Reserve Bank of India; and
(v) Un-deployed FCNR (B) funds may also be invested in long term overseas debt
instruments issued by a foreign state, subject to the condition that the residual maturity of
such instruments shall not exceed the maturity of the underlying FCNR (B) deposits.
4. Overseas foreign currency borrowing by Authorised Dealers
4.1 Overseas foreign currency borrowing by Authorised Dealer Category-I banks
(i) An Authorised Dealer Category-I bank may borrow in foreign currency from its Head
Office, overseas branches, overseas banks, International / Multilateral Financial
Institutions or any other entity permitted for this purpose by the Reserve Bank.
Provided that the Authorised Dealer Category-I bank may borrow only from the
International / Multilateral Financial Institutions in which Government of India is a
shareholding member or which have been established by more than one government or
have shareholding by more than one government and other international organizations.
(ii) Overseas foreign currency borrowings by an Authorised Dealer Category-I bank, shall
not exceed 100 per cent of its Tier I capital or USD 10 million (or its equivalent in any other
currency), whichever is higher. Any borrowing above this limit shall be made only with the
prior approval of the Reserve Bank.
iii(iii) The following borrowings shall be outside the aforesaid limit:
(a) Overseas borrowings by an Authorised Dealer Category-I bank for the purpose of
financing export credit;
(b) Borrowings in foreign currency for the purpose of raising capital;
(c) Interest free funds received by a foreign bank from its Head Office which are the
source for cash / unencumbered approved securities held with Reserve Bank
under Section 11(2)(b)(i) of the Banking Regulation Act, 1949, reckoned as credit
risk mitigation;
(d) Overdraft in nostro accounts up to five days; and
(e) Any other overseas foreign currency borrowing specifically excluded for this
purpose by the Reserve Bank.
(iv) An Authorised Dealer Category-I bank may also use funds borrowed or swapped
overseas, for lending in foreign currency in India in terms of the Foreign Exchange
Management (Borrowing and Lending) Regulations, 2018 (Notification No. FEMA
3(R)/2018-RB dated December 17, 2018), as amended from time to time and the
directions issued by the Department of Regulation, Reserve Bank of India.
4.2 Overseas foreign currency borrowing by Standalone Primary Dealers
authorised as Authorised Dealer Category-III
A Standalone Primary Dealer may borrow in foreign currency from its parent or banks
outside India or any other entity as permitted by the Reserve Bank and avail overdrafts in
nostro accounts (not adjusted within five days). Such borrowings shall be within the limit
for foreign currency borrowings prescribed in the Reserve Bank of India (Standalone
Primary Dealers) Directions, 2025 dated November 28, 2025, as amended from time to
time.
5. Governance and risk management
(i) An Authorised Dealer shall, with the approval of its Board of Directors (or equivalent
forum), frame a policy for its foreign exchange dealings which shall include, among others,
the net overnight open position (NOOP) limit. The NOOP limit shall be communicated to
the Reserve Bank through CIMS/e-mail to fmrdfx@rbi.org.in. Such limit shall not exceed
25 per cent of the total capital (Tier I and Tier II capital) of the Authorised Dealer. This limit
shall be the aggregate for all branches including their overseas branches, IBUs and OBUs.
For foreign banks, the limit shall cover only their branches in India.
iv(ii) The Reserve Bank of India may, depending on the market conditions, prescribe a limit
for net open position involving Rupee as one of the currencies (NOP-INR) for Authorised
Dealers, at its discretion.
(iii) An Authorised Dealer shall compute its net open positions in terms of the instructions
issued by the Department of Regulation, Reserve Bank of India. The procedure for
calculation of all other risk limits shall be documented as an internal policy and adhered
to in a consistent manner.
6. Market timings
(i) The market timings for customer and inter-bank foreign exchange transactions shall be
as specified by the Reserve Bank from time to time. An Authorised Dealer may also
undertake transactions, beyond onshore market hours with users and with other
Authorised Dealers, IBUs, OBUs and overseas entities.
(ii) The market timings for ETCD transactions shall be as prescribed by the Securities and
Exchange Board of India, in consultation with the Reserve Bank.
vAnnex II
Format of Gaps, Position and Cash Balances (GPB) Statement
Statement showing gaps, position and cash balances as on………..
1 Foreign Currency Balances : IN USD MILLION
(Cash Balance + All Investments)
2 Net Open Exchange Position (Rs.) : O/B (+)/O/S (-) IN INR CRORE
3 Of the above FCY/INR : IN INR CRORE
3a Onshore Position : IN INR CRORE
3b Offshore Position : IN INR CRORE
vi