RBI Tightens Rules on INR Derivative Contracts Between Related Parties

Posted On - 27 May, 2026 • By - King Stubb & Kasiva

RBI has issued a circular[1] to all Authorised Dealers, withdrawing its earlier circular (A.P. (DIR Series) Circular No. 03 dated April 01, 2026) and introducing revised instructions on foreign exchange derivative contracts involving INR with related parties. These instructions fall under the Master Direction on Risk Management and Inter-Bank Dealings dated July 05, 2016.

Revised Framework for INR Derivative Contracts

Under the revised framework, ADs are prohibited from undertaking any foreign exchange derivative contract involving INR with their related parties, except in the following limited circumstances:

Permitted Exceptions

  1. Cancellation and rollover of existing contracts.
  2. Transactions undertaken on a back-to-back basis with non-related non-resident users.

Regulatory Impact and Objective

The circular significantly tightens the regulatory framework governing INR-linked derivative transactions between banks and their related parties. It effectively restricts potential avenues for regulatory arbitrage or preferential dealing.

By limiting such transactions to genuine back-to-back user arrangements, RBI aims to strengthen market integrity, transparency, and oversight in the foreign exchange derivatives market.

References

[1] https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13373&Mode=0

Last Updated on 27 May, 2026