Executive Summary 

Through A.P. (DIR Series) Circular No. 25, the Reserve Bank of India (RBI) has instituted stringent curbs on foreign exchange derivatives, effectively barring the rebooking of cancelled contracts. Working in tandem with the new FERR mandates, this directive forces authorized dealers and corporate hedgers to strictly establish underlying exposures, eliminating traditional cancel-and-rebook speculative strategies.

Background

Historically, market participants could cancel and rebook forward contracts to capitalize on favourable exchange rate movements without genuine underlying trade shifts. This created artificial volatility in the INR markets. To curb this, the RBI has restricted derivative usage strictly to hedging verifiable trade flows, drastically reducing the limits for positions taken without establishing an underlying exposure.

What Has Changed

Particulars Earlier Position Revised Position (Circular No. 25)

Rebooking of Cancelled Contracts Permitted subject to specific limits Completely barred for new cancellations

No-Underlying Position Limit Up to USD 100 Million Slashed to USD 5 Million

Key Provisions

• Rebooking Ban: Hedgers are barred from rebooking any INR derivative contracts cancelled after the issuance of this circular. Maturity rollovers, however, remain permitted.

• Limit Reductions: The threshold for taking foreign exchange derivative positions without establishing an underlying exposure is reduced to USD 5 million.

• Compliance Enforcement: AD Banks must actively monitor and block rebooking requests while updating daily CIMS reporting.

Applicability

• Covered Entities: Corporate hedgers, importers, exporters, and proprietary traders.

• Intermediaries: Authorised Dealer (AD) Category-I Banks processing derivative transactions.

Practical Implications

• Treasury Operations: The elimination of cancel-and-rebook strategies restricts treasurers from actively trading currency fluctuations within their hedging portfolios.

• Compliance Burden: AD banks face increased scrutiny to verify underlying invoices and trade documents before authorizing derivative limits above USD 5 million.

• Market Liquidity: Speculative volumes in the onshore forward markets are expected to drop significantly.

What Should We Do

1. Update Trading Manuals: Instruct treasury execution desks to immediately halt all cancel-and-rebook strategies.

2. Limit Reassessments: Cut internal system limits for no-underlying positions to the new USD 5 million threshold.

3. Document Readiness: Ensure all derivative positions exceeding the limit are strictly backed by verifiable import/export invoices or firm commitments.

KGS Perspective 

The RBI is systematically dismantling avenues for currency speculation disguised as corporate hedging. Treasuries must transition to a purely defensive hedging posture, as the combined impact of the rebooking ban and FERR requirements eliminates the profitability of active forex trading by non-financial corporates.

Conclusion 

Circular No. 25 reinforces the RBI's commitment to a stable, trade-backed currency market. Corporate entities must adapt to a rigid compliance environment where derivatives are utilized strictly for genuine risk mitigation.

Regulatory Reference

• Regulator: Reserve Bank of India (RBI)

• Notification / Circular / Regulatory Reference: A.P. (DIR Series) Circular No. 25 (RBI/2026-27/291) [Dated 10 October 2026]

• Official Document Link: https://www.rbi.org.in