India’s banking sector is raising concerns over new foreign exchange rules, urging the Reserve Bank of India (RBI) to ease norms to prevent market disruption and potential losses.
According to a news report, banks have requested the central bank to revisit recently introduced limits on foreign-exchange positions, warning that the changes could trigger an unwinding of nearly $30 billion in trades.
Under the new guidelines, banks must cap their net open rupee positions in the onshore market at $100 million by April 10. The measure is aimed at stabilising the rupee and reducing speculative activity.
However, lenders believe the tight deadline may force a rushed exit from existing positions. Such rapid unwinding could lead to losses and increased volatility, particularly in arbitrage trades between onshore and offshore markets.
To reduce the impact, banks have proposed extending the compliance timeline and applying the rules only to new trades. This would allow current positions to mature without disruption.
The concerns come at a time when the rupee is already under pressure due to rising oil prices and foreign capital outflows linked to global geopolitical developments.
Market estimates suggest that arbitrage positions range between $25 billion and $50 billion, highlighting the scale of adjustments required under the new framework.
While the RBI’s intent is to strengthen currency stability and curb speculative bets, banks caution that sudden implementation could unsettle markets and reverse recent gains.
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