The Reserve Bank of India (RBI), through a circular dated April 20, 2026, has revised norms on risk management and inter-bank foreign exchange dealings, including withdrawal of an earlier circular dated April 1, 2026.
1. Withdrawal of Earlier Relaxation
- RBI has withdrawn the relaxation granted earlier
- The revised framework introduces stricter controls on FX derivative transactions
2. Prohibition on Related Party Transactions
- Authorised Dealers (ADs) are now restricted from entering into INR-based FX derivative contracts with related parties
3. Permitted Exceptions
Two limited exceptions have been allowed:
- Cancellation or Rollover of Existing Contracts – Existing derivative contracts may be cancelled or rolled over
- Back-to-Back Transactions
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- Permitted with non-related, non-resident users
- Must comply with existing RBI guidelines
4. Definition of ‘Related Party’
- The term shall be interpreted as per Ind AS 24 / IAS 24 (Accounting Standards)
5. Legal Framework
- The directions have been issued under Foreign Exchange Management Act (FEMA), 1999
- Applicable with immediate effect
- Subject to any other approvals or permissions required under applicable laws
6. Objective of the Circular
The measure aims to:
- Strengthen prudential risk management
- Prevent conflicts of interest and misuse of derivatives
- Ensure arm’s length transactions in FX markets
7. Conclusion
The revised directions reinforce RBI’s focus on market integrity and risk containment, ensuring that FX derivative transactions remain transparent, compliant, and free from related-party influence.
Click Here To Read The Full Circular
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