RBI Introduces 20% Foreign Exchange Risk Reserve for Large INR Derivative Contracts

Points to Remember

• A 20% Foreign Exchange Risk Reserve (FERR) is mandatory for INR derivative contracts exceeding USD 2 million notional value used for hedging current account transactions.
• The reserve must be held as cash with the RBI on a daily basis until contract termination.
• Authorised Dealers must report FERR details daily through the Centralised Information Management System (CIMS).
• Attempts to circumvent the USD 2 million threshold by splitting transactions across multiple Authorised Dealers will be considered a violation.
• The directions are effective immediately for all new contracts issued after October 10, 2026.

Why it matters

This new reserve requirement will impact the cost and liquidity management of foreign exchange derivative contracts for corporate clients, requiring adjustments in pricing and compliance processes.