RBI signals cool banks on high-yield forex swaps, new rules bite

Some large banks have shelved a high-yield foreign exchange swap strategy after sensing the Reserve Bank of India (RBI) would not approve. Banks used rupee liquidity from diaspora deposits to buy dollars and invest in US Treasury bills, then sold dollars forward for a gross return close to 9 per cent, The Economic Times reported. Three people told the outlet that banks received such feelers from the RBI, which did not confirm it. Separately, the RBI cut the threshold for forex derivative transactions without underlying exposure from $100 million to $5 million, ordered a 20 per cent notional reserve for large contracts and banned rebooking cancelled contracts. ThePrint reported the measures effectively acted as capital controls, helping the rupee appreciate from Rs 96.7 to Rs 95 within a week after reserves fell $64.7 billion to $721 billion by 16 October. The Hindu Business Line, in a commentary by a former City Union Bank chairman, argued the rules lack clarity, may raise hedging costs and could deter importers from booking forward cover.

Update, 27 October: ThePrint adds context that RBI’s measures, announced in early October, followed a sharp reserve drain during the Gulf crisis, with reserves falling $64.7 billion to $721 billion. It reports the rupee had neared a record low of Rs 96.7 on 9 October before appreciating to Rs 95 after the rules, which it calls effective capital controls.

Update, 27 October 2026: ThePrint reports that the RBI’s measures, announced in early October, followed a $64.7 billion reserve decline to $721 billion as the central bank defended the rupee during the Gulf crisis. It states that the rupee fell to near Rs 96.7 on 9 October before appreciating to Rs 95 within a week of the rules, which it describes as effective capital controls.