Banks Urge RBI To Relax New Foreign Exchange Rules

Major Indian banks are urgently calling on the Reserve Bank of India (RBI) to reconsider or delay a new set of Foreign Exchange (FX) rules. They warn that being forced to close out massive currency bets by the 10 April deadline could trigger large losses across the sector.

The friction stems from a surprise RBI circular issued late on Friday, 27 March. The central bank has capped the "net open position" of authorised dealers at just $100 million per day. Previously, banks were allowed much more flexibility, often keeping open positions worth up to 25% of their total capital.

The $30 Billion "Arbitrage" Trap

For months, Indian and foreign banks have been running a highly profitable trade: buying dollars in India (onshore) and selling them overseas in non-deliverable forwards (NDF) markets to profit from price differences.

• The Scale: Analysts estimate these outstanding bets are worth at least $30 billion.

• The Squeeze: To meet the new $100 million limit, banks must now sell dollars in the local market. This helps the RBI support the rupee. But it forces banks to exit their trades at unfavourable rates.

• Estimated Impact: Financial experts suggest the banking sector could face a huge one-time loss if forced to unwind so quickly.

Why The RBI Is Clamping Down?

The central bank’s move is a direct response to the Iran-US-Israel war, which has devastated the Indian currency.

1. Rupee at Record Low: The rupee officially crashed past the psychological 94-per-dollar mark on Friday, ending at 94.81.

2. Worst in Asia: The INR has dropped more than 4% since the conflict began in late February, making it the worst-performing currency in Asia for 2026.

3. Shifting the Game: By forcing banks to sell dollars, the RBI is shifting the burden of defending the rupee onto the commercial banks.

What Are The Banks’ Demands?

During high-level talks on Saturday, bankers asked for at least a three-month grace period. They argued that the new rules should only apply to future trades, not the billions of dollars in existing contracts. Without this delay, they warn of a "liquidity shock" that could freeze up the currency markets.

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Investor Takeaway

As trading resumes on Monday, 30 March, the final trading day of the Indian fiscal year, expect extreme swings.

• Rupee Spike: The forced selling of dollars by banks could actually cause the rupee to "gap up" (strengthen) toward 92.50 in the short term.

• Bank Stocks: Major banks like SBI, HDFC Bank, and ICICI Bank may see their share prices under pressure.

For investors, the correct strategy could be to wait and watch until the situation becomes normal again and the markets regain confidence.

Sources:

NDTV Profit

Bloomberg