New RBI Directive Targets Intra-Group Risk by Restricting INR Foreign Exchange Derivative Contracts for Authorized Dealers
Meetu Kumari | Apr 23, 2026 |
RBI Withdraws April 1 Circular on Forex Risk Management and Interbank Dealings: Know More
The Reserve Bank of India (RBI) has issued Circular No. 07 on April 20, 2026, marking a significant and swift policy shift. By withdrawing instructions issued only twenty days prior, the central bank has moved to strictly regulate how Authorized Dealers (ADs) manage foreign exchange derivative contracts involving the Indian Rupee (INR), particularly when those trades occur between related entities.
Key Takeaways
By withdrawing the April 1st circular within just 20 days, the RBI is moving swiftly to close perceived loopholes in inter-bank and intra-group currency trading. The new restriction specifically targets “related party” transactions to prevent potential market distortions or risks arising from internal corporate hedging that involves the Indian Rupee. By tying the definition of “related parties” to formal accounting standards like Ind AS 24, the RBI has provided a clear, audit-ready benchmark for Authorized Dealers to identify restricted entities. To avoid market disruption, the RBI has allowed the “rollover and cancellation” of contracts already on the books, ensuring that existing hedges are not forcefully terminated.
| Provision | Subject Matter | Earlier Position | Amended / New Position |
| Circular Status | April 01, 2026 Instructions | Instructions issued under Circular No. 03 were active for Authorized Dealers. | The RBI has officially scrapped the instructions issued on April 01, 2026, with immediate effect. |
| Contract Restrictions | INR Derivative Contracts | General hedging and trading protocols were followed under the Master Direction. | Authorized Dealers are now barred from entering into INR-involved FX derivative contracts with related parties. |
| Permitted Exceptions | Carve-outs for Related Parties | No specific restrictive limitations were placed on related party transactions in the previous circular. | Limited to Two Cases:
1. Cancellation/rollover of existing deals. 
2. Back-to-back deals with non-related, non-resident users. |
| Statutory Authority | Regulatory Power | Issued under standard RBI administrative powers. | Issued under Sections 10(4), 11(1), and 11(2) of FEMA, 1999, making it a statutory mandat |
Click Here to Read the Full Circular
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