RBI Restricts Forex Derivative Deals with Related Parties

· The Reserve Bank of India has withdrawn instructions issued under A.P. (DIR Series) Circular dated April 1, 2026.

Key Directive

· Authorised Dealers (banks) are now prohibited from undertaking INR-based foreign exchange derivative contracts with related parties, except in limited cases.

Permitted Exceptions

· Cancellation or rollover of existing derivative contracts.

· Back-to-back transactions with non-related, non-resident users, as per the Master Direction - Risk Management and Inter-Bank Dealings.

Definition of Related Parties

· As per Ind AS 24 / IAS 24 or equivalent standards.

Legal Basis

· Issued under provisions of Foreign Exchange Management Act, 1999 (FEMA).

Effective Date

· Immediate implementation.

Key Takeaway

· The move tightens oversight on related-party forex derivative transactions, likely aimed at reducing risk, improving transparency, and preventing misuse in INR-linked derivative markets.

[A.P. (DIR Series) Circular No. 07 dated April 20, 2026]

Risk Management and Inter-Bank Dealings

Attention of Authorised Dealers is invited to the A.P. (DIR Series) Circular No. 24 dated March 27, 2026, the A.P. (DIR Series) Circular No. 03 dated April 01, 2026, and the Master Direction - Risk Management and Inter-Bank Dealings dated July 05, 2016, as amended from time to time.

2. On a review, it has now been decided to withdraw the instructions issued vide A.P. (DIR Series) Circular No. 03 dated April 01, 2026. Further, it has been decided that Authorised Dealers shall not undertake any foreign exchange derivative contract involving INR with their related parties except for the following:

(i) cancellation and rollover of existing contracts; and

(ii) transactions undertaken with non-related non-resident users on a back-to- back basis in terms of the Master Direction - Risk Management and Inter-Bank Dealings dated July 05, 2016, as amended from time to time.

3. ‘Related parties’ shall have the same meaning as assigned to it under the Indian Accounting Standard (Ind AS) 24 – Related Party Disclosures or International Accounting Standard (IAS) 24 – Related Party Disclosures or any other equivalent accounting standards.

4. These instructions shall be applicable with immediate effect.

5. The directions contained in this circular have been issued under Sections 10(4), 11(1) and 11(2) of the FEMA, 1999 (42 of 1999) and are without prejudice to permissions / approvals, if any, required under any other law.