India RBI Brief

Headline

RBI prohibits INR non-deliverable derivatives for all users and bans related-party FX derivative dealings with immediate effect

Executive Summary

The Reserve Bank of India issued A.P. (DIR Series) Circular No. 03 dated April 01, 2026, under FEMA 1999 Sections 10(4), 11(1), and 11(2), directing all Authorised Dealers to cease offering INR non-deliverable derivative contracts to resident and non-resident users, prohibit rebooking of cancelled INR FX derivative contracts, and bar all INR FX derivative transactions with related parties as defined under Ind AS 24 or IAS 24. The circular takes effect immediately and signals a structural tightening of RBI's posture on offshore INR derivative activity and intra-group FX risk transfer.

Key Regulatory Signals

• NDF Prohibition — Immediate Cessation Required: Authorised Dealers must immediately discontinue offering non-deliverable derivative contracts involving INR to all users, both resident and non-resident, requiring urgent review and termination of any active NDF product offerings and client agreements.
• Deliverable Contract Condition — Offsetting NDF Monitoring: Authorised Dealers may continue offering deliverable FX derivative contracts for hedging purposes only where the user does not hold offsetting NDF positions; Dealers must implement client-level monitoring and documentation protocols to verify compliance with this condition on an ongoing basis.
• Rebooking Prohibition — Operational Process Change: No INR FX derivative contract, deliverable or non-deliverable, cancelled after April 01, 2026 may be rebooked; Authorised Dealers must update front-office systems, client documentation workflows, and treasury operations to enforce this restriction.
• Related-Party FX Derivative Ban — Intra-Group Restructuring Trigger: All INR FX derivative transactions between an Authorised Dealer and its related parties as defined under Ind AS 24 or IAS 24 are prohibited with immediate effect, requiring banks to identify and unwind or restructure any existing intra-group INR derivative exposures.
• Documentation and Information Rights — Compliance Infrastructure: The circular explicitly authorises Authorised Dealers to demand information and documents from users to verify compliance with the NDF offset condition and rebooking prohibition; institutions must establish or update client due diligence and attestation frameworks accordingly.

Regulatory Delta

This circular follows directly from A.P. (DIR Series) Circular No. 24 dated March 27, 2026, indicating a rapid sequential tightening within a five-day window, a pattern consistent with RBI's interventionist posture during periods of INR volatility or offshore derivative market stress. The prohibition on NDF offerings to all user categories, including non-residents, represents a structural escalation beyond prior guidance, which had progressively restricted but not categorically banned NDF access for resident entities under the Master Direction on Risk Management and Inter-Bank Dealings. The related-party dealing prohibition and the rebooking ban are new categorical restrictions with no direct precedent in prior iterations of the Master Direction, marking a departure from the incremental amendment approach RBI has historically employed. Taken together, the three measures reflect a coordinated effort to sever linkages between the onshore deliverable market and the offshore NDF market, consistent with RBI's longstanding objective of limiting INR internationalisation through derivative channels.

Materiality Classification

High — RBI circular No. 03 issued under FEMA 1999 prohibits all INR non-deliverable derivatives and related-party FX dealings with immediate effect, requiring Authorised Dealers and their counterparties to immediately cease NDF offerings and restructure intra-group INR derivative exposures.

Time Horizon

Immediate — Circular effective April 1, 2026; Authorised Dealers must cease NDF offerings and implement rebooking and related-party dealing prohibitions with no grace period.

Intelligence Outlook

Monitor RBI for follow-on amendments to the Master Direction on Risk Management and Inter-Bank Dealings that formally codify the NDF prohibition. Watch for market impact on offshore INR NDF liquidity and whether RBI introduces coordinated measures to address offshore price discovery implications.