FERR FAQs: RBI Clarifies Foreign Exchange Risk Reserve Rules
Why in the news
On 15 October 2026 the Reserve Bank of India released Frequently Asked Questions (FAQs) to clarify the Foreign Exchange Risk Reserve (FERR) introduced through A.P. (DIR Series) Circular No. 26 (10 October 2026) and No. 27 (12 October 2026).
Key facts: what the FAQs clarify
- Coverage: INR-linked forex derivative contracts in which a user buys foreign currency against the rupee to hedge current account transactions, with notional above USD 2 million; also an Authorised Dealer’s (AD) own hedges of assets and liabilities when buying foreign currency.
- Exclusions: users selling foreign currency, capital account hedges, non-INR contracts, AD market-making or proprietary positions, and contracts with RBI.
- Current account payments arising from capital account deals (e.g. ECB interest, dividends to non-residents) are excluded for users, but ADs’ own hedges of such exposures attract FERR.
- Calculation: 20% of the INR equivalent of notional. Example: USD 10 million at ₹95 gives ₹95 crore notional and ₹19 crore FERR.
- Options: a multi-option structure counts as one contract, using the highest notional leg.
- Maintenance: kept daily in the AD’s current account with RBI from the next working day until one day after the contract ends; no interest; not fungible with CRR; not eligible as HQLA under LCR.
- Partial cancellation: reserve falls pro-rata; it stops if remaining notional drops below USD 2 million.
- Transition: older contracts are exempt, but rollovers are treated as fresh contracts.
- Reporting: daily via RBI’s CIMS by 5 pm on T+1.
About the release
The press release (2026-2027/1334) was issued by Brij Raj, Chief General Manager, RBI. The FAQs warn ADs against splitting deals to stay below the threshold and require granular records subject to audit.
Exam angle
- Remember the numbers: 20% reserve, USD 2 million threshold, T+1 5 pm reporting.
- FERR is separate from CRR under Section 42(1) of the RBI Act, 1934.
- Only foreign currency purchases for current account hedging by users are covered.