The Reserve Bank of India (RBI) on Saturday, October 10, 2026 announced two sets of steps for the foreign exchange market. It issued two circulars that tighten the rules for rupee (INR) foreign exchange derivative contracts, and it opened a special window through which three public sector oil marketing companies will buy the dollars they need every day directly from the central bank.
The measures were announced in two press releases, numbered 2026-2027/1305 and 2026-2027/1306. The RBI said the derivative rules were issued in view of evolving conditions and to keep the foreign exchange market functioning in an orderly way.
Dollar window for oil companies
From Monday, October 12, 2026, the RBI will sell US dollars to Indian Oil Corporation Limited (IOC), Hindustan Petroleum Corporation Limited (HPCL) and Bharat Petroleum Corporation Limited (BPCL) through designated banks. The window covers the companies' entire daily dollar requirement.
The RBI said the decision follows its assessment of current market conditions. In its words, "The facility will come in effect from October 12, 2026 (Monday) and will remain in place until further notice."
Oil companies are among the largest regular buyers of dollars in India because crude oil imports are paid for in foreign currency. With the window in place, that demand is met by the RBI instead of being bought in the open market.
Four changes in rupee derivative rules
The new rules are in A.P. (DIR Series) Circular No. 25 and Circular No. 26, both issued on October 10. They apply to Authorised Dealers (ADs), the banks licensed to deal in foreign exchange, and to their customers.
- No rebooking of cancelled contracts: a customer who cancels a rupee foreign exchange derivative contract with any AD after the directions were issued cannot book it again. This covers deliverable and non-deliverable contracts. Rolling over a contract when it matures is still allowed under the existing rules.
- Lower limit for hedging without proof: customers could so far hedge contracted exposures of up to USD 100 million equivalent without showing evidence of the underlying exposure. That limit is now USD 5 million equivalent, across all ADs.
- Same cut on exchanges: the USD 5 million limit also applies to exchange-traded rupee currency derivatives, counted across all recognised stock exchanges together.
- Undertaking from the customer: for rupee derivatives that hedge contracted exposures, the AD must take and keep an undertaking from the customer that the same exposure has not been hedged with another AD.
New Foreign Exchange Risk Reserve
The RBI has also introduced a Foreign Exchange Risk Reserve (FERR). For a rupee derivative contract with a notional value above USD 2 million equivalent, the AD must keep a cash reserve with the RBI equal to 20% of the rupee value of the contract.
The reserve applies to contracts that hedge current account exposures in which the customer buys foreign currency against the rupee. Payments for imported goods and services are the common example of such exposures.
The press release does not say how long the reserve has to be kept or whether interest is paid on it. Those details would be in the circulars.
Who is affected
- Importers and companies with foreign currency payments: hedges above USD 5 million now need evidence of the underlying exposure, and a cancelled contract cannot be booked again.
- Banks: ADs have to collect the new undertaking, apply the lower limits and place the 20% cash reserve with the RBI on eligible contracts above USD 2 million.
- Traders in currency futures and options: the USD 5 million ceiling without proof of exposure applies across all exchanges combined.
- Ordinary bank customers: the rules deal with derivative contracts. The press releases do not announce any change for remittances, travel cards or foreign currency bought for travel and education.
Background
Rupee derivatives such as forwards, futures and options let a business fix today the exchange rate for a payment or receipt that falls due later. The RBI allows them for hedging real exposures. It said the new steps are meant to strengthen market discipline and risk management while keeping the market orderly and transparent.
The changes come days after the central bank's new trade rules began. On October 1, the FEMA export and import regulations cut the time to bring back export proceeds to nine months.
What happens next
The dollar window for the three oil companies opens on October 12 and has no end date. Businesses with open hedges should ask their AD bank how the two circulars apply to their contracts, since the bank has to apply the new limits and collect the undertaking.
