The proposal reflects ongoing efforts to modernise financial regulation while supporting stability in the banking system.

The Reserve Bank of India outlined the draft framework in a statement, inviting feedback from stakeholders before implementation.

The revised norms are expected to come into effect from April 1, 2027, allowing banks adequate time to prepare for the transition.

Under the proposed changes, banks would no longer be required to calculate separate onshore and offshore net open positions.

Instead, a unified approach would be adopted to simplify reporting and improve clarity in risk assessment.

The central bank indicated that the move is intended to ensure consistent implementation of foreign exchange exposure rules across regulated entities.

Uniform standards can help reduce complexity and improve comparability across banks operating in diverse markets.

Another key element of the proposal allows banks to exclude certain structural foreign exchange positions from net open position calculations.

These include long-term foreign currency investments in subsidiaries, overseas branches, and affiliated but non-consolidated entities.

Such exclusions recognise the strategic nature of these investments, which are typically held for operational or expansion purposes rather than trading.

This approach aims to provide a more accurate reflection of a bank’s actual risk profile.

The Reserve Bank also proposed modifications to the shorthand method used for calculating foreign exchange risk.

These changes are designed to align domestic practices more closely with internationally accepted regulatory frameworks.

One notable adjustment involves treating open positions in gold separately within foreign exchange risk calculations.

This reflects global standards that recognise gold’s unique role and price dynamics in financial markets.

In addition, banks would be required to include all accumulated or unremitted surplus from overseas operations in their net spot positions.

This measure seeks to ensure that potential risks associated with overseas earnings are fully captured.

Regulatory experts note that these proposals reflect a balanced approach to risk management.

By refining calculation methods, the central bank aims to enhance transparency without placing undue operational burden on banks.

The proposed framework also supports improved capital planning for banks.

More accurate measurement of foreign exchange exposure allows institutions to set aside capital more efficiently against potential risks.

Foreign exchange risk management is particularly important for banks with international operations or significant exposure to global markets.

Clear and consistent rules help such institutions manage volatility arising from currency movements.

Market participants are expected to review the proposals closely and provide feedback during the consultation period.

Industry input can help fine-tune the framework before it is finalised.

The Reserve Bank has emphasised that the changes are part of its broader effort to keep India’s financial regulations aligned with evolving global norms.

Such alignment supports investor confidence and enhances the resilience of the banking sector.

Banks are likely to use the transition period to update internal systems and risk management processes.

Early preparation can help ensure a smooth shift to the revised methodology once it comes into force.

Overall, the proposed changes signal a measured and forward-looking approach to financial regulation.

They aim to strengthen risk oversight while supporting the continued growth and international integration of India’s banking system.

The move follows months of requests from market participants who say the existing framework has pushed a significant portion of activity to offshore markets.

The current regulations require traders to hold an actual underlying exposure before taking positions in exchange-traded currency derivatives.

Although this rule existed earlier, it was rigorously reinforced in 2024, reducing speculative activity but also slowing overall domestic market participation.

Market participants say the advisory triggered a sharp decline in trading volumes in India. Meanwhile, overseas platforms saw a rise in activity, particularly in contracts linked to the dollar-rupee pair.

The average daily turnover in India’s currency futures fell sharply from more than $3 billion in early 2024 to under $1 billion in late 2025.

In contrast, futures linked to the dollar-rupee pair expanded significantly in Singapore, drawing greater interest from traders looking for flexibility.

Regulators are now considering whether adjustments could bring balance between oversight and growth.

Top officials from the central bank and India’s market regulator have held preliminary talks on modifying rules to reopen access to individual and proprietary traders.

No formal review has begun, but the idea has gained traction as authorities track falling domestic participation. A final decision is expected to rest with the central bank, which remains cautious about speculative flows.

Some regulators previously viewed speculation as a risk that could destabilize the currency. However, there is now an emerging opinion that controlled speculation helps improve liquidity and price discovery in the market.

Market watchers say the decline in volumes supports the concern that speculation had been driving much of the earlier activity. But they also note that the domestic derivatives market did not create major disruptions for currency management during that period.

According to people familiar with the discussions, regulators may be open to revisiting exposure rules if safeguards are strengthened. The focus is likely to be on controlling excesses rather than encouraging unfettered participation.

Traders have suggested reducing position limits to prevent the buildup of oversized speculative bets. Before April 2024, traders could take positions worth up to $100 million without showing evidence of an underlying need.

Many market participants believe this limit allowed individual traders to take large directional positions. Reducing these thresholds is being discussed as a way to address regulatory concerns while still allowing reasonable activity.

Regulators acknowledge that the global shift in trading has raised questions about the effectiveness of domestic constraints. As Indian markets lose volume to global exchanges, the challenge is to maintain oversight without discouraging legitimate participation.

Industry experts say balanced reforms could increase transparency while supporting the country’s financial ambitions. A more vibrant derivatives market could help attract investors who currently rely on overseas platforms.

While the debate continues, traders are watching closely for signs of regulatory change. Any easing of rules could gradually rebuild activity and restore India’s position in regional currency trading.

Market participants believe that clarity and consistency will be essential for long-term stability. They also note that any policy adjustments must preserve safeguards that prevent market manipulation or excessive volatility.

For now, discussions remain ongoing and no timeline has been announced. The currency derivatives market awaits further guidance as regulators weigh the risks and benefits of a revised framework.