RBI curbs net open positions of banks in forex markets

MUMBAI: For the first time in nearly 15 years, the RBI has placed curbs on the size of bets that banks can take in the currency markets, taking away powers, hitherto, vested with bank boards.

The move comes at a time when the rupee is under pressure due to a combination of sales by foreign institutional investors, a rise in the oil import bill, and the overhang of tariffs and visa curbs on exports.RBI’s direction on Friday caps banks’ net open position in rupee at $100 million, effective April 10, 2026, citing “market conditions.” Hitherto, the net open position limit was fixed by the boards of banks.Bankers said that while speculation helps provide liquidity in the forex market, in volatile times, when markets are one-sided, such bets can be self-fulfilling.

Post-2013, banks set their own Net Overnight Open Position Limits (NOOPL) up to 25% of Tier I/II capital, with RBI reserving discretion to impose market-driven caps. In Dec 2011, RBI had curbed net open position limits in currency trading by 75% for some banks and 50% for top banks. The move had come after the domestic currency weakened by as much as 20%.Incidentally, RBI had in Jan issued draft directions on calculating net open position and capital charge for foreign exchange risk, inviting comments from stakeholders. The central bank had proposed the new rules to come into effect from April 1, 2027. The new norms also seek to remove the separate calculation for offshore and onshore net open positions.