RBI withdraws April 1 rupee-derivatives curbs in 2026

What changed and why it matters

The Reserve Bank of India (RBI) on April 20, 2026, partially rolled back restrictions it had imposed earlier in April on rupee-linked foreign exchange (FX) derivatives. The curbs were introduced after the rupee weakened to successive record lows, slipping past the 95-per-dollar level in late March. The rollback removes two restrictions that had directly affected how banks and clients could use non-deliverable and forward contracts. At the same time, the RBI retained guardrails aimed at limiting arbitrage and related-party structures in INR derivative trades. For market participants, the move signals a return to more normal hedging activity while keeping controls where the RBI sees higher risk. The changes apply with immediate effect.

The April 1 restrictions that have been withdrawn

On April 1, the RBI had barred authorised dealers from offering non-deliverable forwards (NDFs) involving the rupee to both resident and non-resident users. It had also prohibited users from rebooking any FX derivative contract cancelled after April 1. These measures were part of a clamp-down on arbitrage trades that the RBI believed were worsening volatility in the rupee’s exchange rate. According to the updated circular and related reporting, both of these instructions have now been withdrawn entirely. That effectively reinstates access to NDF products for eligible users and restores the ability to rebook cancelled contracts, subject to the broader risk management framework.

Related-party INR derivative trades remain restricted

While rolling back the first two measures, the RBI has kept restrictions on FX derivative contracts involving INR with “related parties”. The central bank said authorised dealers shall not undertake any foreign exchange derivative contract involving INR with their related parties, except for limited cases. The allowed exceptions include cancellation and rollover of existing contracts. Another permitted route is transactions undertaken with non-related non-resident users on a back-to-back basis, in line with the Master Direction on Risk Management and Inter-Bank Dealings dated July 5, 2016, as amended.

How the RBI defines “related parties”

The RBI clarified that the term “related parties” will carry the same meaning as defined under applicable accounting standards. The circular referenced Ind AS 24 and IAS 24 for this definition. This matters because the restriction is not framed around residency alone, but around relationships that could enable structured risk-taking or regulatory circumvention. In practice, it limits authorised dealers from using group entities or connected counterparties to set up derivative exposures involving INR, except within the narrow carve-outs the RBI has specified.

Market backdrop: rupee’s record low and subsequent stabilisation

The measures stemmed from a period when the rupee slid to a record low past 95 to the dollar in late March. Following restrictions rolled out in April, the rupee reportedly bounced about 2% and then steadied in a 92.50 to 93.50 range over recent sessions. The RBI’s partial rollback aligns with that stabilisation narrative. A person familiar with the matter told Reuters that the April 1 instructions were meant to be temporary, had the desired impact, and were no longer needed. The RBI itself said it withdrew the April 1 instructions after a review.

The net open position cap still in place

Despite easing some derivative rules, one major constraint remains unchanged. The limit on banks’ net open rupee positions in the onshore market at $100 million continues to apply. Earlier reporting linked the initial restrictions to efforts to curb arbitrage by placing a cap on banks’ net open rupee positions. The persistence of this limit indicates the RBI is still prioritising tighter control over banks’ aggregate rupee risk and potential volatility spillovers, even as it relaxes product-level restrictions.

What the circular says and the legal basis

The RBI’s directions were issued through a circular on risk management and inter-bank dealings. The central bank said the instructions were applicable with immediate effect. The directions have been issued under provisions of the Foreign Exchange Management Act (FEMA), 1999. Separately, coverage noted this was RBI’s second curb on the forex market after a March 27 directive, with compliance mandated by April 10, 2026. The latest changes, however, specifically address the April 1 framework.

Key changes at a glance

Market impact: hedging returns, speculative routes still curtailed

With the withdrawal of the NDF and rebooking restrictions, authorised dealers and users regain tools commonly used for hedging and managing currency exposures. This can reduce friction for corporates and investors that rely on forwards and derivatives as part of routine risk management. At the same time, the related-party restriction and the $100 million net open position cap keep pressure on trading strategies that depend on large balance-sheet positions or connected counterparty structures. RBI Governor Sanjay Malhotra has also said earlier in the month that the curbs on banks’ foreign-exchange positions will not remain in place indefinitely, suggesting the central bank sees these as conditional and review-driven controls rather than permanent rules.

Why the partial rollback matters

The RBI’s approach reflects a balance between restoring normal market functioning and limiting the kinds of trades it believes amplified rupee swings during the recent stress period. The rollback removes the broad product bans that can affect genuine hedging activity. But the retention of restrictions on related-party INR derivatives, alongside the net open position cap, shows the central bank remains focused on channels that could enable arbitrage or speculative build-up. For investors tracking Indian financial markets, the decision is a signal that policy measures are being calibrated in step with rupee stability and evolving market conditions.

Conclusion

The RBI has withdrawn two key April 1 curbs on rupee derivatives, restoring NDF access and rebooking of cancelled contracts, while tightening the framework around related-party INR derivative deals. The $100 million net open position cap remains. Next signals to watch will be any further RBI reviews of the position limits and additional guidance under its risk management and inter-bank dealings framework.