RBI Relaxes NOP-INR Rules for Banks Participating in Special Foreign
Currency Swap Facilities
·
The Reserve Bank of India (RBI) has issued a
clarification modifying its earlier circular on the Net Overnight Open
Position (NOP)-INR limits for Authorised Dealer Category-I (AD Cat-I)
banks.
·
The circular refers to:
o
RBI's A.P. (DIR Series) Circular No. 13 dated June
8, 2026.
o
The Master Direction on Risk Management and
Inter-Bank Dealings.
o
Special swap facilities introduced for:
§ FCNR(B)
deposits.
§ External
Commercial Borrowings (ECBs).
§ Overseas
Foreign Currency Borrowings (OFCBs).
What Has
Changed?
·
AD Cat-I banks are now allowed to exclude
certain foreign exchange positions from their NOP-INR calculations.
·
The exclusion applies specifically to positions
arising from hedged transactions related to:
o
Foreign Currency Non-Resident (Bank) [FCNR(B)]
deposits.
o
External Commercial Borrowings (ECBs).
o
Overseas Foreign Currency Borrowings (OFCBs).
Purpose
of the Change
·
The RBI had introduced special swap windows to
attract foreign currency inflows into India.
·
Without this relaxation, banks participating in
these swap facilities could face constraints because the resulting foreign
exchange positions would count toward their NOP-INR limits.
·
By excluding these hedged positions, RBI is
encouraging banks to actively participate in the special swap schemes without
breaching regulatory position limits.
Conditions
·
Banks must continue to comply with:
o
A.P. (DIR Series) Circular No. 24 dated March 27,
2026.
o
Other applicable prudential and risk-management
requirements.
·
Only positions arising from the specified hedged
transactions can be excluded.
Impact on
Banks
·
Provides greater flexibility in managing foreign
currency liabilities.
·
Reduces regulatory burden associated with
participation in RBI's foreign currency mobilization initiatives.
·
Facilitates smoother execution of FCNR(B), ECB, and
overseas borrowing swap transactions.
·
Enhances banks' ability to attract foreign currency
resources into India.
Broader
Economic Significance
·
The measure supports RBI's efforts to:
o
Increase foreign currency inflows.
o
Strengthen India's external sector position.
o
Improve foreign exchange liquidity in the banking
system.
o
Manage potential volatility in global financial
markets.
Legal
Basis
·
The directions have been issued under Sections
10(4), 11(1), and 11(2) of the Foreign Exchange Management Act, 1999 (FEMA).
Key
Takeaway
RBI has provided regulatory relief to AD Category-I
banks by allowing them to exclude hedged positions arising from FCNR(B)
deposits, ECBs, and overseas foreign currency borrowings from NOP-INR
calculations. The move is designed to encourage participation in RBI's special
foreign currency swap facilities, thereby supporting foreign capital inflows
and strengthening India's external financing position.
[RBI/2026-27/153
A.P. (DIR Series) Circular No.16 dated June 23, 2026]
Open positions of
Authorised Dealer Category-I banks
Attention
of Authorised Dealer Category (AD Cat)-I banks is invited to the A.P. (DIR
Series) Circular No. 13 dated June 8, 2026 and the Master Direction – Risk
Management and Inter-Bank Dealings dated July 05, 2016, as amended from time to
time. Attention of AD Cat-I banks is also invited to circulars
FMOD.MAOG.No.S-56/01.06.016/2026-27 dated June 8, 2026 on ‘Swap Facility for
FCNR (B) Deposits’ and FMOD.MAOG.No.S-57/01.06.016/2026-27 dated June 8, 2026
on ‘Swap Facility for External Commercial Borrowings and Overseas Foreign
Currency Borrowings’.
2.
In partial modification of the A.P. (DIR Series) Circular No. 13 dated June 8,
2026 on ‘NOP-INR position of Authorised Dealer Category-I banks’, it has been
decided that AD Cat-I banks shall exclude the positions arising out of hedged
transactions related to FCNR (B) deposits, External Commercial Borrowings and
Overseas Foreign Currency Borrowings raised in terms of the aforesaid
circulars, while ensuring compliance with the provisions of the A.P. (DIR
Series) Circular No. 24 dated March 27, 2026 and for computation of net
overnight open position in terms of the aforesaid Master Direction.
3.
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.