SBI Faces Losses on ₹46,000 Cr Rupee Bet After RBI Rule

RBI's Sudden Forex Cap

The Reserve Bank of India (RBI) has introduced a significant regulatory change, capping the net open currency positions for banks at $100 million daily. This directive, effective April 10, 2026, is one of the most forceful steps taken in over a decade to curb speculative trading against the Indian rupee. The move comes as the currency faces mounting pressure, sliding to successive record lows amid geopolitical tensions in West Asia and rising crude oil prices. The central bank's action aims to stabilize the rupee by forcing lenders to unwind large, one-sided bets against the currency, thereby reducing market volatility.

SBI's Large Position Under Scrutiny

State Bank of India (SBI), the country's largest lender, has been identified as one of the institutions significantly impacted by this new rule. According to reports, SBI held bets against the rupee worth approximately $1 billion, or over ₹46,400 crore. The sudden regulatory shift has put this substantial position at risk. The forced unwinding required to comply with the new $100 million limit is expected to result in losses for the bank. Initial estimates suggest these losses could be around $12 million, which translates to nearly ₹300 crore. While this is a notable figure, sources close to the matter have indicated that the losses are considered manageable for a bank with an asset base of around $100 billion.

The Previous Regulatory Framework

Before this intervention, banks operated with greater flexibility. Their boards could set their own Net Overnight Open Position Limits (NOOPL), which were capped at 25% of their Tier-I and Tier-II capital. This allowed banks to maintain much larger open positions across various markets, including onshore deliverable forex, non-deliverable forwards (NDF), and currency futures. The new rule drastically narrows this flexibility by imposing a uniform, much lower limit specifically on the onshore deliverable market. The RBI's decision effectively removes the discretionary power banks previously held, enforcing a stricter discipline on their forex trading activities.

A Sector-Wide Impact

The RBI's directive is not limited to SBI. Many Indian banks, both public and private, are believed to have held positions that were long on the US dollar and short on the rupee, primarily through proprietary and arbitrage trades. According to brokerage firm Systematix, other major institutions with large treasury and forex operations, such as HDFC Bank, ICICI Bank, and Axis Bank, are also vulnerable to this regulatory shift. Industry estimates suggest that the total outstanding bets that need to be unwound could be anywhere from $10 billion to $10 billion, with excess arbitrage positions alone potentially in the range of $10-18 billion.

Banks Seek Regulatory Relief

Faced with the prospect of a disorderly unwinding and significant mark-to-market losses, lenders are reportedly engaging with the regulator. Banks have approached the RBI seeking a delay in the April 10 compliance deadline or a phased implementation of the new rule. The primary concern is that a rapid squaring off of such large positions could trigger further market volatility and crystallise substantial losses. They have urged the RBI to consider applying the new cap only to new bets, allowing existing positions to be managed over a more extended period. The outcome of these discussions will be crucial in determining the immediate financial impact on the banking sector.

Macroeconomic Pressures on the Rupee

The RBI's intervention did not occur in a vacuum. The Indian rupee has been under severe pressure, recently slipping past 95 per dollar to hit new record lows. This depreciation is driven by several external factors, including the escalating conflict in West Asia, which has pushed crude oil prices higher. A rising oil import bill widens India's current account deficit and puts downward pressure on the currency. At the same time, the RBI's own capacity to intervene has been under strain, with its net short position in the dollar forward market reportedly nearing $100 billion. This new rule is a way to defend the currency without further depleting foreign exchange reserves.

An Ironic Turn for SBI Research

In an interesting development, a research report published by SBI's own economic research department shortly before the RBI's announcement had advocated for a different approach. The report suggested that the RBI should actively use its substantial foreign exchange reserves, which it described as 'significantly comfortable,' to intervene in the market and prop up the rupee. The report argued that India's reserves, covering more than 10 months of imports, were strong enough to deter speculative moves. This recommendation stands in contrast to the regulatory action that ultimately put the bank's own trading positions under pressure.

Market Outlook

The RBI's enforcement of a uniform limit is designed to force a short squeeze, compelling banks to unwind their large long-dollar positions. This is expected to provide some immediate support to the rupee as banks sell dollars to meet the new compliance requirements. However, once this initial unwinding is absorbed by the market, the rupee's trajectory will once again be dictated by underlying economic fundamentals. Factors such as global oil prices, foreign portfolio investment flows, and the ongoing geopolitical situation will continue to be the primary drivers of the currency's value in the medium to long term.