Circular No. A.P. (DIR Series) Circular No. 07, Dated 20.04.2026
The Reserve Bank of India (RBI) has withdrawn the relaxation granted vide circular dated April 1, 2026 and has clarified restrictions on INR-based foreign exchange (FX) derivative transactions with related parties.
1. Prohibition on Related Party Transactions
- Authorised Dealers (ADs) are now prohibited from undertaking INR-based FX derivative contracts with related parties
2. Limited Exceptions Permitted
The RBI has allowed restricted exceptions for:
- Cancellation or rollover of existing contracts
- Back-to-back transactions with:
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- Non-related, non-resident users
- In accordance with the relevant Master Direction
3. Definition of ‘Related Party’
- The term ‘related party’ shall be interpreted in line with Ind AS / IAS 24
This ensures consistency with accounting and disclosure standards.
4. Regulatory Impact
The revised position aims to:
- Prevent conflicts of interest and misuse of derivatives
- Strengthen prudential controls in FX markets
- Ensure transactions are undertaken at arm’s length
5. Effective Date
- The directions are effective immediately
6. Conclusion
The withdrawal of the earlier relaxation reinforces RBI’s focus on risk containment and market integrity, ensuring that FX derivative transactions remain transparent, compliant, and free from related-party risks.
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