Economy
RBI Tightens INR Derivatives, Adds 20% Cash Reserve For Banks
The RBI has restricted INR non-deliverable derivatives to hedging and imposed a 20% cash reserve requirement.
What happened
The RBI said authorised dealers may offer INR-linked non-deliverable derivative contracts to non-residents only for hedging, ending their unrestricted use by purpose. Banks and authorised primary dealers must also maintain a Foreign Exchange Risk Reserve equal to 20% of the INR notional value for applicable derivatives used to hedge their own assets and liabilities. The reserve must be held in cash with the RBI daily until contract termination.
Why it matters
Banks will have to keep cash locked with the RBI against applicable INR derivatives, while non-resident users face narrower permitted purposes for these contracts.
Source: RBI Notifications