The Reserve Bank of India (RBI) plans to provide greater flexibility to banks’ authorised dealers (ADs) and standalone primary dealers (SPDs) in foreign exchange dealings.
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FRANCIS MASCARENHAS
The Reserve Bank of India (RBI) plans to provide greater flexibility to banks’ authorised dealers (AD) in foreign exchange and standalone primary dealers to deal in products and undertake foreign exchange transactions for hedging their exposures, balance sheet management and market-making.
As per the “Draft circular of Foreign Exchange Dealings of Authorised Persons”, AD Category-I banks can borrow up to 100% of Tier-I capital or USD 10 million (whichever is higher). Borrowing above this limit will require RBI approval. Standalone Primary Dealers (SPDs) can borrow from parents or banks abroad within the prescribed limits.
For managing proprietary and client-related exposures, ADs can undertake foreign exchange transactions, including Non-Deliverable Derivative Contracts (NDDCs) involving Indian Rupees (INR). These transactions can be cash-settled in INR or foreign currency, provided the bank (or its parent) has an operating IFSC Banking Unit (IBU).
Transactions by ADs will be permitted on RBI-authorised electronic trading platforms (ETPs). They can also use offshore ETPs if the operator is in a Financial Action Task Force (FATF) member country and regulated by CPMI or IOSCO.
Further, ADs may deal in currency derivatives on recognised Indian exchanges, IFSC exchanges, and FATF-regulated overseas exchanges (for non-INR contracts).
An AD can utilise the surplus funds in its foreign currency accounts for purposes such as overnight placements, reverse repo with maturity of up to one year, invest in overseas money market instruments, and / or invest in overseas debt instruments issued by a foreign state with original or residual maturity of up to one year.
Further, the AD can lend in INR and foreign currency. Un-deployed FCNR (B) funds may also be invested in long-term overseas debt instruments issued by a foreign state, subject to the condition that the residual maturity of such instruments shall not exceed the maturity of the underlying FCNR (B) deposits.
Banks designated under the Gold Monetisation Scheme can hedge gold price risk in overseas markets using OTC or exchange-traded products (subject to a “no net premium paid” rule on options).
Published on February 17, 2026
