Even after regulatory relief, Indian banks are moving carefully on currency derivatives, holding back from fully resuming Indian rupee non-deliverable forward (NDF) trades for clients, according to multiple sources.
Reserve Bank of India recently withdrew restrictions imposed on April 1, which had barred banks from offering NDF contracts and limited corporates from rebooking cancelled foreign exchange deals. The curbs were introduced when the rupee hit an all-time low.
Despite the rollback, 3 treasury officials said their banks have not yet restarted NDF trading for clients, while 1 official said such trades are being allowed with extra caution. Banks are not treating this as a return to normal operations, as the central bank continues to closely monitor currency market activity.
“At this stage, the compliance and supervisory risks are just too high,” one treasury official said. All 4 sources spoke on condition of anonymity as they are not authorised to speak publicly.
One source noted that the relaxation is aimed at helping companies with genuine hedging requirements. Earlier, restrictions were imposed after corporates exploited arbitrage opportunities between onshore and offshore markets. This followed a cap of $100 million on banks’ net open positions to control pressure on the rupee.
However, corporates engaging in similar arbitrage trades reduced the effectiveness of these measures, leading to stricter action by the RBI. The central bank also reviewed how large banks unwound such positions, especially where corporates and related parties were involved.
At a recent FX conference, RBI Deputy Governor T. Rabi Sankar expressed concerns over banks passing arbitrage trades to corporate clients despite restrictions, making market participants more cautious.
Another source said that while companies may now theoretically resume such trades, RBI scrutiny is likely to discourage them. Additionally, the gap between onshore and offshore rates has narrowed. For the 1-month tenor, the dollar/rupee NDF rate is trading 7–8 paisa above the onshore market, compared to nearly ₹1 during peak volatility.
A treasury official added that simultaneous buying and selling of dollars for the same maturity across markets would trigger warning signals.
The central bank did not immediately respond to a request for comment.
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