RBI Plans Forex Rule Easing, Permits Banks To Trade Globally

The Reserve Bank of India (RBI) is looking to loosen the reins on how banks operate in the foreign exchange market. In a draft set of directions released this week, the central bank has proposed giving authorised dealers more room to hedge risks, manage their balance sheets and access overseas trading platforms. At the same time, it has continued to step in aggressively to support liquidity through bond purchases.

What Exactly Is RBI Changing In The Forex Rulebook?

At the heart of the proposal is flexibility. The RBI wants authorised dealer banks and certain standalone primary dealers to have more operational freedom in dealing with foreign exchange.

Banks may soon be allowed to trade on electronic platforms outside India. There is a clear safeguard, though. The platform must be based in a country that is part of the Financial Action Task Force and supervised by a recognised financial regulator.

Banks can also carry out transactions that do not involve the rupee on overseas exchanges, provided those exchanges meet similar regulatory standards.

The draft goes further. Authorised dealers may undertake non-deliverable derivative contracts linked to the rupee with other authorised dealers. These products are widely used to hedge currency exposure without physically exchanging currencies.

In addition, banks may be permitted to borrow and lend in foreign currency more freely, not just for client transactions but also for market-making and managing their own books.

Why Does This Matter For Businesses And Markets?

For companies exposed to currency swings, this could mean more hedging options and better pricing.

The draft framework expands the types of derivatives banks can offer. Trades could be executed in over-the-counter markets, on domestic exchanges, at international financial centres, and even on approved offshore electronic venues. That effectively plugs Indian participants more directly into global liquidity pools.

Another important change relates to trading hours. Since currency markets operate around the clock, the RBI is proposing to give banks the freedom to transact beyond domestic market timings. This would allow exposures to be adjusted in real time as global prices move.

Market participants say such steps could help deepen the forex market and bring Indian practices closer to those seen in developed economies.

Can Banks Use Idle Foreign Currency Funds More Efficiently?

Yes, and this is another significant shift.

With board approval, banks may deploy surplus foreign currency funds in short-term overseas government securities or money market instruments. They can also place funds overnight or lend against foreign government bonds.

Unused Foreign Currency Non-Resident (Bank) deposits may be invested in longer-term foreign sovereign bonds, as long as the maturity does not exceed that of the underlying deposit.

The draft also covers gold-related transactions. Banks designated under the Gold Monetisation Scheme, 2015, or those permitted to enter forward gold contracts in India, may hedge gold price risk in overseas markets. However, when using products involving options, banks must ensure there is no net receipt of premium.

Why Is RBI Buying More Government Bonds?

Alongside these forex proposals, the central bank has been active in supporting liquidity.

In FY26 so far, the RBI has purchased government securities worth ₹6,39,203 crore through Open Market Operations. During the same period, the Centre raised ₹13,65,000 crore as part of its gross borrowing programme.

Heavy government borrowing typically absorbs liquidity from the banking system and can push bond yields higher.

Also Read - RBI Reverses 2025 DLG Rule

Investor Takeaway

The central bank has invited public comments on the draft directions until March 10. Once finalised, the proposed forex changes could help banks manage currency risks better and tap global markets more smoothly, which may support earnings over time.

Meanwhile, RBI’s steady bond buying shows it wants to keep liquidity comfortable, a move that could help keep interest rates and market volatility in check.

Sources:

Financial Express

Times of India

MSN