RBI tightens forex norms; banks may rebalance positions

The Reserve Bank of India’s sudden move to cap banks’ overnight foreign exchange positions at $100 million by April 10 is set to create waves across the banking and forex markets.

Banks currently holding $40–50 billion in open positions may face Rs 4,000 crore in mark-to-market losses on a single rupee move in USD/INR, according to industry sources. With March 30 marking the final trading session of FY26 and markets remaining shut on March 31 for Mahavir Jayanti, participants are preparing for heightened volatility.

Over the weekend, banks reportedly requested the RBI to either phase in the position limit gradually or apply it only to incremental positions taken after April 10, leaving existing exposures untouched. There has been no official response so far. Speaking to Bizz Buzz, Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors, said, “If there is no response from RBI, the rupee could gain substantially.

This would offer importers an opportunity to hedge their imports, especially with oil prices above $115 per barrel, which will surely keep the dollar well bid once the positions are liquidated.”

The RBI’s NOP circular comes as a precautionary step to curb excessive long-dollar positions, according to MV Hariharan, former treasury head at the State Bank of India. “The regulator’s aim is to prevent irrational exuberance to cash in on INR weakness.

This is essentially a soft warning to market players,” he said. While the measure is temporary, valid only until April 10, the central bank hopes it will contain the rupee’s recent plunge and possibly reverse some of its losses, even as shifting geopolitical dynamics continue to weigh on markets.

Given the volatilities and the momentum of shifting geopolitics, this tightrope walk, though quite difficult was expected, he said.

The potential impact on normal banking operations is significant. Banks typically buy dollars onshore at lower premiums and sell offshore at higher premiums to generate spreads and deepen the market. Limiting positions to just $100 million could force large trade reversals, leading to INR appreciation and mark-to-market losses for banks.

Prakhar Sharma, equity analyst at Jefferies, explained, “Gross onshore positions of $30–40 billion dominate the derivatives market. A one-rupee movement in the USD/INR pair could result in a one-time Rs 30–40 billion loss for the banking sector, while hedge funds and foreign banks might profit from derivative trades.”

Banks, importers, and exporters are now weighing their options carefully. While importers may look to hedge their payables aggressively, exporters are likely to wait for a more favorable rupee level to convert revenues.

Analysts caution that the combination of large open positions, RBI intervention, and geopolitical tension could keep the market in a narrow but nervy trading range until positions are unwound after April 10.