RBI Forex Risk Reserve: What Importers and Finance Teams Should Check
A business that buys foreign currency for a future payment should review its hedge documentation with its Authorised Dealer. RBI has introduced a Foreign Exchange Risk Reserve, or FERR, for specified derivatives. The reserve obligation is placed on the Authorised Dealer. Businesses should ask how their bank will apply the rules to a proposed contract before assuming the effect on price or cash requirements.
What changed, and when?
RBI’s 10 October 2026 circular, A.P. (DIR Series) No. 26, covers INR-linked forex derivatives above USD 2 million equivalent used to hedge current-account transactions where the user buys foreign currency against INR.
The Authorised Dealer must maintain cash with RBI equal to 20% of the contract’s INR-equivalent notional amount, daily until termination. The directions apply to contracts undertaken after issuance. Deliberately dividing transactions across one or more dealers to circumvent the requirement is prohibited.
The 12 October 2026 circular, No. 27, also requires FERR for dealers’ own-asset/liability hedges when buying foreign currency against INR. It separately restricts INR non-deliverable derivative contracts offered to non-residents to hedging purposes; the earlier permission described in that circular allowed them without a purpose restriction. These directions also apply after issuance.
RBI announced clarifying FAQs on 15 October 2026. That FAQ publication date does not replace the circulars’ commencement wording.
Who should review their position?
The practical audience includes finance teams arranging foreign-currency hedges, import businesses planning large purchases and advisers reviewing treasury controls. Begin with the actual contract: its purpose, amount, currency direction, execution time and counterparty.
This article does not reconstruct the entire earlier derivatives framework. The before-and-after position described here is limited to the express changes in the two circulars.
A simple example
Illustration only: Assume a company proposes a USD 3 million derivative to hedge an import payment, buying USD against INR. Assume the INR conversion used for this example is ₹90 per USD.
Item Illustrative calculationINR-equivalent notionalUSD 3,000,000 × ₹90 = ₹27 crore20% reserve calculation₹27 crore × 20% = ₹5.4 crore
Once the dealer confirms that the contract is covered, this illustrates the reserve calculation at dealer level. The ₹90 rate is hypothetical, not a current market quote. The calculation alone does not establish what the dealer will charge the customer or require under its contract.
What should the finance team do?
The following is an editorial control checklist, rather than an additional RBI filing requirement:
- Prepare an exposure list. Record the underlying payment, currency, amount, due date and proposed hedge.
- Ask for written classification. Request the dealer’s explanation of whether FERR applies and the relevant circular or FAQ.
- Separate the costs. Ask for the exchange quote, premium, fees and any customer margin requirement as separate items.
- Check authority. Confirm who in the business may approve the transaction and record the commercial reason for the hedge.
- Retain evidence. Keep the invoice, hedge confirmation, dealer correspondence and approval together.
- Escalate unusual changes. Obtain current guidance before cancelling, replacing or restructuring a contract.
Business impact and risks
Editorial assessment: The reserve may affect dealer economics and the terms offered to customers. Its effect on a particular quote must be established with the dealer; no fixed customer price increase follows from the reserve percentage alone.
When comparing quotes, hold the amount, tenor and settlement terms constant. A lower headline rate may be less useful if other cash requirements are unclear. Do not restructure genuine exposures merely to avoid a threshold.
Frequently asked questions
Must every overseas payment carry a 20% deposit?
No. The circular concerns specified derivatives and an Authorised Dealer reserve. It does not create a general 20% customer deposit on every outward payment.
Is USD 2 million a limit on import payments?
No. The figure is part of the scope test in Circular No. 26. Payment permissions require their own review.
Can I use this article to decide rollover or cancellation treatment?
No. Ask the dealer to apply the current RBI FAQs and relevant instructions to the exact facts.
Key takeaway
Before executing a covered hedge, obtain a clear answer on classification, pricing and cash requirements. Keep that answer with the underlying exposure records.
Educational action: Use the checklist at your next treasury review and read the linked RBI circulars.
Disclaimer: General educational information, current as of 17 October 2026. This is a limited circular-based explainer, not personalised legal, investment or treasury advice. Transaction-specific treatment requires the applicable RBI instructions, FAQs and Authorised Dealer guidance.