RBI brings offshore INR derivatives into reporting net to aid price discovery

The Reserve Bank of India (RBI) has asked banks to report all overseas foreign exchange derivatives transactions involving the Indian rupee undertaken by their related entities, as it aims to improve price discovery, enhance transparency, and curb speculative activity.

In its final guidelines on reporting of offshore rupee derivatives trades, the RBI said that all authorized dealer category-I banks must report such transactions to the Clearing Corp. of India Ltd (CCIL). The directions build on the central bank’s broader push to improve transparency in over-the-counter (OTC) derivatives markets. Authorized dealer category-I banks are commercial banks licensed by the RBI to carry out a comprehensive range of foreign exchange transactions. Essentially, they are market makers.

The move addresses a long-standing blind spot in India’s derivatives market. While onshore OTC trades are already reported to CCIL, a significant portion of rupee-linked derivative activity takes place offshore and remains outside the reporting system.

According to the RBI, this lack of visibility can affect pricing and risk assessment. By bringing offshore trades into the reporting net, the central bank aims to improve market transparency, better price discovery and strengthen risk monitoring.

Under the new framework, banks must report all OTC foreign exchange derivative contracts involving the Indian rupee executed globally by their related parties, including offshore entities. This covers both deliverable and non-deliverable contracts.

The RBI has laid out a phased implementation. From 1 July 2027, banks must report all such contracts undertaken by their parent entities. They must also ensure that at least 70% of the notional value of trades by other related entities is reported and this rises to 80% from 1 January 2028. Finally, full reporting of 100% is mandated from 1 July 2028.

On Monday, the Indian rupee closed at 94.19 per US dollar against 94.24 in the previous session.

Transactions should ideally be reported on the same day, and no later than two working days after execution.

To ease operational burden, the RBI has allowed some flexibility. Banks can skip reporting back-to-back trades already captured under existing rules, as well as trades with other banks in India. They are also allowed to skip small transactions with notional value up to $1 million.

The central bank has also asked banks to report granular details such as counterparty name, notional value, maturity, currency and contract specifications.

In comparison to the draft guidelines issued in February, the final framework is more calibrated and slightly less stringent in the initial phase, while still achieving full transparency over time.

In the draft circular, banks were required to reach 90% reporting coverage within 24 months and without explicitly separating parent and other related entities.

These measures come as the central bank has been taking steps in the currency market to curtail speculative activity. On 20 April, the RBI eased parts of its forex rules for banks, allowing certain related-party hedging transactions to continue and clarifying that they will not be treated as speculative trades.

Banks can continue undertaking back-to-back hedging transactions, including across overseas branches, as long as they are genuine risk-offsetting trades. The overall $100 million net open position (NOP) limit remains unchanged, and the revised rules take effect immediately, RBI had said in a circular.

The central bank has also allowed banks to retain existing positions within the $100 million cap until maturity, or modify them if required, removing the need for premature unwinding.

The net open position limit defines the maximum unhedged foreign exchange exposure a bank can carry and is used by the RBI to curb excessive currency speculation and maintain market stability.

The move follows a series of tightening measures over the past month. On 27 March, the RBI capped banks’ net open positions in the domestic market at $100 million at the end of each business day. On 1 April, the central bank further tightened rules by restricting related-party transactions, including offsetting trades between domestic and overseas branches.

Those steps sought to curb one-sided positioning in the rupee and tighten control over speculative flows in the foreign exchange market.

The Indian rupee fell 11% against the US dollar in FY26, and has since recovered nearly 2% after the RBI tightened net open position rules for banks.