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RBI Raises Forward Contract Deliverable Threshold to 75%

Current & verified — this is the latest version
Source: Reserve Bank of India · RBI/2006-2007/380 · issued 08 May 2007 · ~2 min read
Quick answerRBI has increased the threshold for deliverable-only forward contracts from 50% to 75% of eligible limits based on past performance, allowing importers/exporters more flexibility in hedging forex exposures.
The rule, in the simplest words
How it plays out — a real example

A forex & trade-finance officer in Mumbai helps an exporter who wants to hedge $1 million in future dollar receipts. The exporter's eligible limit is $800,000 (based on past trade). Under the new rule, the officer can book up to $600,000 (75% of $800,000) as a flexible, cancellable forward contract. Only the remaining $200,000 must be booked as deliverable-only and non-cancellable, giving the exporter more room to adjust their hedging strategy.

What changed

Previously, forward contracts booked in excess of 50% of the eligible limit (based on past performance) had to be on a deliverable basis and could not be cancelled. This circular raises that threshold to 75%, meaning only contracts above 75% of the eligible limit are now subject to deliverable-only and non-cancellable conditions. The eligible limit itself remains unchanged—computed as the higher of the average of the previous three financial years' actual import/export turnover or the previous year's actual turnover.

What it means for you

Banks can now offer more flexible hedging to clients, as importers and exporters can book up to 75% of their eligible forward contract limit on a non-deliverable basis, reducing the need for physical settlement. This liberalization supports dynamic hedging and may increase demand for forward contracts, requiring banks to update their internal systems and client advisories. The change aligns with RBI's policy to ease forex risk management for trade participants.

What you must do

Who it affects

AD Category-I banks, Importers and exporters using forward contracts for hedging, Treasury and forex risk management teams at banks

❓ Common questions

What is the eligible limit for booking forward contracts based on past performance?

The eligible limit is the higher of the average of the previous three financial years' actual import/export turnover or the previous year's actual turnover, computed separately for imports and exports.

Can forward contracts booked up to 75% of the eligible limit be cancelled?

Yes, forward contracts booked up to 75% of the eligible limit can be cancelled, as they are not subject to the deliverable-only condition. Only contracts exceeding 75% must be on a deliverable basis and cannot be cancelled.

Does this circular change the reporting requirements for forward contracts?

No, all other conditions and reporting requirements prescribed for this facility remain unchanged as per earlier circulars.

📜 Read the original circular — full text as issued by RBI
RBI/2006-2007/380 A.P. (DIR Series) Circular No. 52 May 08, 2007 To, All Authorised Dealer Category - I Banks Madam / Sir, Booking of Forward Contracts Based on Past Performance Attention of Authorised Dealer Category - I (AD Category - I) banks is invited to A. P. (DIR Series) Circular No.19 dated January 24, 2002 , A. P. (DIR Series) Circular No. 63 dated December 21, 2002 , A. P. (DIR Series) Circular No. 26 dated November 1, 2004 and A. P. (DIR Series) Circular No. 22 dated December 13, 2006 . 2. At present, AD Category - I banks are permitted to allow importers and exporters to book forward contracts on the basis of a declaration of an exposure and based on past performance up to the average of the previous three financial years' (April to March) actual import / export turnover or the previous year’s actual import / export turnover, whichever is higher, subject to specified conditions. Further, forward contracts booked in excess of 50 per cent of the eligible limit shall be on a deliverable basis and cannot be cancelled. The aggregate forward contracts booked during the year and outstanding at any point of time should not exceed the eligible limit. The eligible limits are to be computed separately for import / export transactions. 3. As announced in the Annual Policy Statement for the year 2007-08 (para 140), with a view to facilitate dynamic hedging of foreign exchange exposures of exporters and importers, it has been decided to further liberalise the above facility by raising the eligible limit of 50 per cent to 75 per cent. Accordingly, forward contracts booked on the basis of declaration of an exposure by importers / exporters and based on past performance in excess of 75 per cent of the eligible limit shall be on a deliverable basis and cannot be cancelled. All other conditions and reporting requirements prescribed for this facility will remain unchanged. 4. AD Category - I banks may bring the contents of this circular to the notice of their constituents and customers. 5. The directions contained in this circular have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act 1999 (42 of 1999) and is without prejudice to permissions/approvals, if any, required under any other law. Yours faithfully, (Salim Gangadharan) Chief General Manager
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2006-2007/380 · issued 08 May 2007. The plain-English explanation above is BankPulse’s own independent summary.
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Who does what — compliance checklist
💻 IT / Systems
  • Ensure systems are configured to flag contracts exceeding 75% of eligible limit as deliverable-only and non-cancellable.
📜 Compliance
  • Update internal guidelines to reflect the new 75% deliverable threshold for forward contracts booked on past performance basis.
  • Communicate the revised limit to all constituents and customers, especially importers and exporters.
  • Maintain unchanged reporting requirements and other conditions as per existing circulars.
Grouped from the action items above — a single circular may involve more than one team.
Worked example & action-note template

Example: if you are a Compliance officer at a bank this circular applies to (AD Category-I banks, Importers and exporters using forward contracts for hedging, Treasury and forex risk management teams at banks), your first concrete step on “RBI Raises Forward Contract Deliverable Threshold to 75%” is: “Update internal guidelines to reflect the new 75% deliverable threshold for forward contracts booked on past performance basis.” (RBI issued this 08 May 2007).

  1. Circular: RBI/2006-2007/380 -- RBI Raises Forward Contract Deliverable Threshold to 75%
  2. Issued: 08 May 2007
  3. Action required: Update internal guidelines to reflect the new 75% deliverable threshold for forward contracts booked on past performance basis.
  4. Action required: Communicate the revised limit to all constituents and customers, especially importers and exporters.
  5. Action required: Ensure systems are configured to flag contracts exceeding 75% of eligible limit as deliverable-only and non-cancellable.
  6. Action required: Maintain unchanged reporting requirements and other conditions as per existing circulars.
  7. Owner: ____________ Target date: ____________
  8. Board/committee approval needed? Y / N
  9. Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.

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BankPulse Compliance Evidence Pack — generated 05 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly).
Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=3501&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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