RBI Withdraws Curbs On Offshore Rupee Derivatives, Eases NDF Trading Rules

The Reserve Bank of India (RBI) on April 20 eased restrictions on offshore rupee trading by allowing authorised dealers to offer non-deliverable derivative contracts without earlier limitations, as part of a rollback of measures introduced to curb volatility, according to an RBI notification.

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Authorised dealers are no longer required to restrict offering non-deliverable forward (NDF) derivative contracts involving the rupee to residents or non-residents. They can also permit users to rebook foreign exchange derivative contracts linked to the rupee, the central bank said.

Key Changes In Derivative Rules

The RBI clarified that authorised dealers cannot enter into rupee-denominated foreign exchange derivative contracts with related parties. Exceptions are limited to cancellation or rollover of existing contracts and back-to-back transactions with unrelated non-resident users, as per the notification. The revised rules came into effect immediately on April 20.

Position Limits Remain Unchanged

Despite easing curbs in the offshore market, the RBI retained limits on banks’ exposure in the onshore market. Banks must continue to cap their net open positions in the deliverable rupee market at $100 million at the end of each business day, according to the RBI.

Background To Earlier Restrictions

The central bank had introduced stricter norms in March 2026 after volatility in the rupee intensified. The measures were aimed at controlling speculative activity in the offshore NDF market as global crude oil prices surged above $100 per barrel during heightened tensions between the U.S. and Iran, according to RBI statements.

As part of these measures, banks reduced speculative positions in the offshore market. Data showed that nearly $40 billion of such positions were unwound by April 10, contributing to a recovery in the rupee from its record low of 95.21 against the U.S. dollar, according to RBI data.

Policy Stance On Market Development

RBI Governor Sanjay Malhotra had earlier indicated that the restrictions were temporary and introduced in response to specific market conditions. In its latest message, the central bank stated that it would continue its efforts to improve its foreign exchange markets by making them more effective and efficient.

The relaxation of some rules represents a change from the emergency policy adopted last month, as the central bank retains some controls but allows more freedom in rupee derivatives trading.