Authorised Dealers must
maintain a cash reserve of 20% with the RBI against each qualifying INR foreign
exchange derivative contract, strengthening risk management in the foreign
exchange market.
·
Mandatory
Foreign Exchange Risk Reserve (FERR)
- Authorised Dealers
(ADs) are required to maintain a Foreign Exchange Risk Reserve (FERR) for
foreign exchange derivative contracts involving INR undertaken with users.
·
3.
Applicability
o Applicable to INR-involving foreign
exchange derivative contracts with a notional value exceeding USD 2 million
equivalent.
o Contracts must be undertaken for hedging
current account transactions where the user is purchasing foreign currency
against INR.
·
Reserve
requirement
o FERR shall be equal to 20% of the INR
equivalent of the notional amount of each derivative contract.
o The reserve must be deposited and
maintained in cash in India with the RBI on a daily basis.
o It must be maintained until termination of
the contract.
·
Anti-circumvention
provision
- Splitting
transactions across one or more Authorised Dealers to circumvent the USD 2
million threshold will be treated as a violation of the Directions.
·
Reporting
requirement
- Authorised Dealers
must report details of the FERR maintained daily through the RBI’s Centralised
Information Management System (CIMS).
Effective
date
- The Directions apply
to foreign exchange derivative contracts undertaken after 10 October 2026, the
date of issuance.
·
Legal
basis
- Issued under Sections
10(4) and 11(1) of the Foreign Exchange Management Act (FEMA), 1999, and
Section 45W of the RBI Act, 1934.
[RBI
Circular No. A.P. (DIR Series) Circular No. 26 dated 10 October 2026]
Risk
Management and Inter-Bank Dealings - Foreign Exchange Risk Reserve Attention of
Authorised Dealers is invited to the Master Direction - Risk Management and
Inter-Bank Dealings dated July 05, 2016, as amended from time to time.
2.
With a view to ensuring the orderly functioning of the foreign exchange market,
it has been decided that:
i.
Authorised
Dealers shall be required to maintain a Foreign Exchange Risk Reserve (FERR)
for foreign exchange derivative contracts involving INR undertaken with users;
ii. The Reserve shall be applicable to all
foreign exchange derivative contracts involving INR of notional value exceeding
USD two million equivalent undertaken for the purpose of hedging current
account transactions where the user is purchasing foreign currency against INR;
iii. This Reserve shall be equal to 20 per
cent of the INR equivalent of the notional amount of each derivative contract;
and
iv. This Reserve shall be deposited and
maintained by way of cash in India with the Reserve Bank on a daily basis and
shall be maintained until the termination of the contract.
3.
Any attempt by users to circumvent the requirements set out in paragraph 2 (ii)
ibid through undertaking multiple transactions with one or more Authorised
Dealers shall be considered as a violation of these Directions.
4.
Authorised Dealers shall report the details of the FERR maintained on a daily
basis through Centralised Information Management System (CIMS) of the Reserve
Bank.
5.
These Directions shall be applicable to foreign exchange derivative contracts
undertaken after the issuance of these Directions.
6.
These Directions are issued in exercise of the powers conferred by Sections
10(4) and 11(1) of the FEMA, 1999, and Section 45W of the Reserve Bank of India
Act, 1934, and are without prejudice to permissions / approvals, if any,
required under any other law.