Banks must keep net open rupee positions within $100 million by April 10 to limit excessive currency bets
Banks with higher exposure may need to sell dollars, which could support the rupee but trigger mark-to-market losses
Rising crude prices, FPI outflows, and geopolitical tensions have pushed the rupee to a record low of 94.84/$, with risks of breaching 95
The Reserve Bank of India (RBI) has stepped in with a targeted directive for banks to curb the sharp fall in the rupee. It has asked banks to cap their net exposure to the rupee at $100 million by the end of each trading day, starting April 10.
In simple terms, banks can no longer carry large positions that profit from the rupee weakening or strengthening. This gives the central bank more control over excessive speculation that can destabilise the currency.
1 April 2026
Get the latest issue of Outlook Business
“The Reserve Bank may prescribe limits for open positions involving the rupee (NOP-INR) for exchange rate management, depending on market conditions,” the directive read.
“Accordingly, it has now been decided that Authorised Dealers shall ensure that their NOP-INR positions in the onshore deliverable market are maintained within US$100 million at the end of each business day," it added.
A net open position (NOP) reflects the gap between a bank’s dollar purchases and sales, higher positions indicate bigger bets on currency movements. With the new directive, the RBI is trying to prevent large, one-sided trades that can amplify volatility.
Dollar Sell-Off Ahead
As per a report by The Economic Times, most large and mid-sized banks with net open positions exceeding $100 million are expected to sell dollars to comply with the directive. However, such compliance is likely to result in mark-to-market losses for banks, even though the unwinding of dollar positions could support the rupee.
The report said banks had lobbied the central bank to apply the rule only to incremental positions after April 10, as aggregate net open positions are estimated at $40 billion.
Traders said that if the gap between rupee-dollar rates in the offshore non-deliverable forwards (NDF) market and the onshore market widens to Re 1, banks could face losses of up to ₹4,000 crore.
Rupee Under Pressure
Amid rising geopolitical tensions and inflationary pressures, the rupee has been depreciating faster than expected, with the domestic currency hitting a lifetime low of 94.84 per dollar on Friday. Excess demand for dollars has been driven by importers’ purchases due to a surge in crude oil prices, as well as continued foreign portfolio investor outflows from Indian markets.
The rupee has fallen nearly 3.5% against the greenback since the war broke out on February 28. In FY26, the currency has depreciated around 10%.
Forex traders and analysts have warned that the rupee could breach the psychologically crucial level of 95 per dollar by the end of April if the West Asia conflict prolongs. Even in the event of a conflict resolution, traders expect the rupee to remain under pressure, likely stabilising in the range of 93.50–94.30 against the dollar.
Some market participants also factor in the possibility of the domestic currency quickly weakening to the 96–97 per dollar range in April if crude oil prices remain elevated.
Banks Rush for Relief
As per notes by broking firm Jefferies the Reserve Bank of India may consider providing some flexibility in implementing the directive. Based on discussions with banks, the brokerage indicated that the central bank could explore measures such as grandfathering existing contracts while applying the new limits only to incremental positions.
"While this may support INR, unwinding of positions (by 10Apr) may lead to MTM losses in 4Q as positions may be large at $30-40bn with large banks & select foreign banks leading. Sector has sought leniency from RBI," the statement read.
It may also consider extending the April 10 compliance deadline to ensure smoother currency adjustments and mitigate the MTM impact on banks’ balance sheets. Banks may be forced to scale back their forex positions, which could result in both mark-to-market and realised losses in the fourth quarter.
Under normal conditions, banks exploit pricing differences between markets by buying dollars in the onshore market, where premiums are lower, and selling or squaring off those positions in offshore markets, where premiums are higher. This arbitrage helps generate profits while also adding liquidity to the system.
However, the new cap requiring positions to be reduced to $100 million could force banks to unwind a large portion of these trades. Such a move may trigger significant reversals in the market, potentially strengthening the rupee against the dollar.
The impact on bank earnings could be substantial. Any sharp movement in the rupee could translate into sizable one-time losses, especially when applied to large position books. A strengthening rupee in offshore markets may, however, benefit hedge funds and foreign banks that are positioned on the other side of these trades.
