If your startup pays overseas vendors, imports equipment or sells services for dollars, and your bank books forwards or options for you, the rules for those contracts changed on 10 October 2026. That day the Reserve Bank of India issued A.P. (DIR Series) Circular No. 25 (RBI/2026-27/291) and Circular No. 26 (RBI/2026-27/292) to Authorised Dealers. Both amend the position under the Master Direction on Risk Management and Inter-Bank Dealings dated 5 July 2016, and both are issued under Sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 and Section 45W of the Reserve Bank of India Act, 1934.
The circulars are addressed to banks. In practice, each one changes what your bank will ask you for and what it can let you do. Circular No. 25 came into force with immediate effect. Circular No. 26 applies to contracts undertaken after it was issued.
Five changes in one table
| Change | What the circular says | Where |
|---|---|---|
| Hedging without establishing the underlying | Up to USD 5 million equivalent of notional value outstanding at any point of time, across all Authorised Dealers (earlier USD 100 million) | Circular No. 25, para 2(c) |
| Exchange-traded currency derivatives involving INR | Up to USD 5 million equivalent across all currency pairs involving INR and all recognised stock exchanges combined (earlier USD 100 million) | Circular No. 25, para 2(c) |
| Cancelled contracts | A forex derivative contract involving INR cancelled with any Authorised Dealer after the Directions cannot be rebooked; rollover on maturity is still allowed | Circular No. 25, paras 2(a) and 2(b) |
| Undertaking | Your bank must obtain and keep your undertaking that the same exposure is not hedged with any other Authorised Dealer | Circular No. 25, para 2(d) |
| Foreign Exchange Risk Reserve (FERR) | 20% of the INR equivalent of the notional amount of each contract above USD 2 million equivalent that hedges current account transactions where you buy foreign currency, kept by the bank in cash with RBI until the contract ends | Circular No. 26 |
What this means for your treasury
The no-documents hedge now has a much smaller ceiling. The USD 5 million limit counts everything outstanding across all your banks, so a company hedging a few large vendor contracts can cross it. Above it, the existence of the underlying exposure has to be established, and para 3 of Circular No. 25 makes your bank responsible for that, with documents kept for not less than two years. Have the invoice, purchase order or contract behind each hedge ready when your bank asks.
Cancel-and-rebook is closed, so plan for rollover. If a vendor payment slips, cancelling the forward and booking a fresh one is no longer possible for a contract cancelled after the Directions, and the bar covers a contract cancelled with any Authorised Dealer, not only the bank you rebook with. Rollover on maturity remains, subject to the Master Direction. Set hedge tenors around realistic payment dates, and write into your hedging policy when a contract is rolled rather than cancelled.
Hedging one exposure in parts needs a register. Where the same exposure is hedged in parts with more than one bank, the undertaking must show the amounts already booked with the others. A simple register of each exposure, the amount hedged and the bank keeps every undertaking accurate. Your bank can take the undertaking as part of the deal confirmation.
Large import hedges carry a reserve at the bank’s end. For contracts above USD 2 million equivalent that hedge current account transactions where you buy foreign currency against INR, such as import payments, your bank must keep 20% of the INR notional in cash with RBI, maintained daily until the contract ends, and report it through RBI’s Centralised Information Management System. The reserve is the bank’s obligation; ask your bank how it will treat contracts that attract it before you book one. Do not break one exposure into smaller contracts to stay under USD 2 million: para 3 of Circular No. 26 treats any attempt to get around the threshold through multiple transactions with one or more Authorised Dealers as a violation of the Directions.
Exporters are not outside the change. The FERR applies only where the user is buying foreign currency against INR, so an exporter selling dollars forward is outside it. The USD 5 million limit, the rebooking bar and the undertaking still apply to every user.
Your checklist this week
- Total your outstanding notional across all banks and identify hedges booked without underlying documents.
- Collect the invoice, purchase order or contract for each hedged exposure.
- Update your hedging policy and board-approved treasury limits: replace the USD 100 million figure and set a rollover-not-cancel rule.
- Start an exposure register for the undertaking.
- Ask each bank how it will take the undertaking and how it will treat contracts above USD 2 million.
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Source: Reserve Bank of India, A.P. (DIR Series) Circular No. 25, RBI/2026-27/291, Risk Management and Inter-Bank Dealings, 10 October 2026, rbi.org.in
Source: Reserve Bank of India, A.P. (DIR Series) Circular No. 26, RBI/2026-27/292, Risk Management and Inter-Bank Dealings: Foreign Exchange Risk Reserve, 10 October 2026, rbi.org.in
Source: Reserve Bank of India, Press Release 2026-2027/1305, RBI Announces Regulatory Measures for the Foreign Exchange Market, 10 October 2026, rbi.org.in
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A S Banka Advisors Private Limited. This article is for general information and is not legal advice.
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