The $100 million Net Open Position – Indian Rupee (NOP-INR) limit in the onshore deliverable market prescribed by the RBI for Banks’ authorised to deal in foreign exchange should be imposed only on their trading book and not on whole bank book level as it creates operational challenges, according to SBI’s economic research department.
Further, given that much of the pressure on the rupee can have a two-way pass through the debt markets, the RBI needs to concomitantly explore the probability of conducting “Operation Twist” that pushes up the short-term yield while sobering the yield on long term papers.
Referring to the NOP-INR limit, which is aimed at reducing large bets against the Indian currency and preventing sharp movements, the Bank’s economists noted that the attempt to rationalize the open position for banks by the RBI though useful is likely to have created a significant divergence of the Onshore and Offshore markets.
“Indian banks (both public sector banks/PSBs and private sector banks/PVBs) are generally long onshore and short offshore, while foreign banks exhibit a contra trend. As banks attempt to unwind their positions, liquidity shortages are likely to emerge, creating a vicious cycle where offshore premiums could witness sharp rise.
“Thus, the NDF (non-deliverable forward) premia for 1 year shot up on Monday to 4.19% (from 3.43% yesterday) while 1 month premia spiked from 0.33% to 0.67%, and the NDF /Offshore rates were quoting at Rs 98.41 today, we believe the $100 mn limit should be imposed on the trading book only and not on whole bank book level as it creates operational challenges,” said Soumya Kanti Ghosh, Group Chief Economic Advisor, SBI, in the Bank’s Ecowrap report
This is also important as many FPIs and some FDI players would be taking out their funds in the present situation (reallocation / profit booking) and would be placing genuine demands on banks to fulfil on order matching basis.
On “Operation Twist”, SBI economists said it will ensure various reference rates remain within the prescribed bands, aligned with policy rate in calibrated manners. They also believe liquidity could be simultaneously modulated to ensure Rupee also gets support.
The Economists noted that interestingly, the Indian Rupee depreciated by 6.4% between 2nd April 2025 to 27th February 2026 (period 1 /the West Asia war started on 28th February). At the same time the dollar index also depreciated by 6% during the same period.
“This was the time when most currencies were appreciating against the dollar but not the rupee and thus perhaps the argument of using rupee as a shock absorber may have been overblown.
“The rupee depreciation post 27th February (period 2) is in fact in line with other currencies, and in fact better than currencies which appreciated significantly in period 1 indicating that in an uncertain world pushing the limits on rupee depreciation as a shock absorber does not hold beyond an inflection point,” they said.
Published on March 30, 2026
