MUMBAI: For the first time in nearly 15 years, the Reserve Bank of India has imposed limits on the amount of bets banks can take in currency markets, taking away powers that had hitherto been vested in bank boards.
The move comes at a time when the rupee is under pressure due to a combination of sales by foreign institutional investors, a rising oil import bill, a backlog of tariffs and visa restrictions on exports.The Reserve Bank of India’s direction on Friday sets banks’ net open positions in rupees at $100 million, effective April 10, 2026, citing “market conditions.” Until now, the net limit of open positions has been set by banks’ boards.Although speculation helps provide liquidity in the forex market, in volatile times, when markets are one-sided, such bets can be self-fulfilling, bankers said.
Post 2013, banks set their Net Overnight Open Position (NOOPL) limits up to 25% of Tier I/II capital, with the RBI retaining its discretion to impose market-driven caps. In December 2011, the Reserve Bank of India restricted net open position limits in currency trading to 75% for some banks and 50% for major banks. This step came after the local currency declined by up to 20%.
reconnaissance
In your opinion, what is the main reason why the Reserve Bank of India (RBI) imposed these new betting limits?
Incidentally, the Reserve Bank of India in January issued draft guidelines on calculation of net open position and capital charges for foreign exchange risk, inviting comments from stakeholders. The central bank had proposed the new rules that will come into effect from April 1, 2027. The new norms also seek to remove the separate calculation of offshore and onshore net open positions.