FERR: RBI mandates 20% forex risk reserve, bans rebooking of rupee hedges
Why in the news
On October 10, 2026, the Reserve Bank of India issued two circulars to Authorised Dealers that tighten the rules on rupee-linked foreign exchange derivatives, including a new Foreign Exchange Risk Reserve (FERR).
Key facts
- FERR rate: Authorised Dealers must set aside 20% of the INR equivalent of the notional amount of each covered contract, held daily as cash in India with RBI until the contract ends.
- Coverage: INR FX derivative contracts with notional value above USD 2 million, used to hedge current account transactions in which the user buys foreign currency against the rupee.
- Anti-splitting: breaking a deal across one or more dealers to escape FERR counts as a violation; FERR details are reported daily through RBI’s CIMS.
- No rebooking: users cannot rebook any INR FX derivative (deliverable or non-deliverable) cancelled after the circular; rollover at maturity is still permitted.
- Undertaking: users must declare that the same exposure is not hedged with another dealer.
- Both directions took effect immediately and were signed by Chief General Manager Dimple Bhandia.
| Item | Circular | Detail |
|---|---|---|
| Risk management changes | A.P. (DIR Series) No. 25 (RBI/2026-27/291) | Rebooking ban; no-proof limit cut from USD 100 million to USD 5 million |
| FERR | A.P. (DIR Series) No. 26 (RBI/2026-27/292) | 20% reserve on contracts above USD 2 million |
About the legal framework
The circulars amend the Master Direction on Risk Management and Inter-Bank Dealings of July 5, 2016. They draw power from Sections 10(4) and 11(1) of FEMA, 1999 and Section 45W of the RBI Act, 1934. Dealers must keep supporting documents for at least two years.
Exam angle
- Remember the numbers: 20% FERR, USD 2 million threshold, USD 5 million no-proof limit.
- Legal basis to note: FEMA Sections 10(4) and 11(1) plus RBI Act Section 45W.
- The same day, RBI also opened a special dollar window for oil marketing companies, with the rupee at Rs 96.73 per dollar on October 9.