RBI eases rules for switching AD banks on hedge rollovers
Current · Source: Reserve Bank of India · RBI/2012-13/124 · issued 11 Jul 2012 · ~2 min read
Quick answerRBI now allows residents to cancel and rebook forward contracts with a different AD Category I bank on maturity for all hedge transactions, not just capital account hedges over one year. This flexibility applies to both current and capital account hedges, provided cancellation and rebooking happen simultaneously.
The rule, in the simplest words
Residents can now cancel and rebook forward contracts with a different AD Category I bank on maturity for all hedge transactions.
This flexibility applies to both current and capital account hedges, provided cancellation and rebooking happen simultaneously.
The new bank must verify original cancellation before rebooking the contract.
How it plays out — a real example
A forex & trade-finance officer in Indore can now allow a resident to switch their forward contract to a different AD Category I bank on maturity, providing they cancel and rebook simultaneously. This flexibility will help the resident get more competitive rates and the officer can ensure robust verification processes to confirm the original contract cancellation.
What changed
Previously, only capital account forward contracts with tenor over one year could be cancelled with one AD bank and rebooked with another on maturity. Now, this switching flexibility is extended to all resident hedge transactions, including current account hedges. The conditions remain: simultaneous cancellation and rebooking on maturity, and the new bank must verify original cancellation.
What it means for you
Banks can now offer residents more competitive rates by allowing them to switch AD banks on hedge rollovers without losing hedge continuity. This increases competition among AD Category I banks for hedging business, as clients can move contracts to get better pricing. Banks must ensure robust verification processes to confirm original contract cancellation.
What you must do
Update internal policies to allow cancellation and rebooking of forward contracts with another AD bank for all resident hedge transactions on maturity.
Implement verification procedures to confirm original contract cancellation before rebooking with a new AD bank.
Train staff on the expanded scope, covering both current and capital account hedges, and ensure simultaneous execution on maturity date.
Communicate the new flexibility to corporate and retail clients to enhance service offerings.
Who it affects
AD Category I banks, Resident corporate hedgers, Retail customers with forward contracts, Treasury and risk management teams
❓ Common questions
Can a resident cancel a forward contract for a current account transaction and rebook with a different bank?
Yes, under this circular, the flexibility to switch AD banks on maturity now applies to all resident hedge transactions, including current account hedges, provided cancellation and rebooking are done simultaneously.
What conditions must be met for switching AD banks on a forward contract?
The switch must be due to competitive rates or termination of banking relationship, cancellation and rebooking must occur simultaneously on the maturity date, and the new AD bank must ensure the original contract was cancelled.
Does this circular apply to non-resident hedgers?
No, the circular specifically extends the flexibility to all hedge transactions undertaken by residents. Non-resident hedgers are not covered by this change.
📜 Read the original circular — full text as issued by RBI
RBI/2012-13/124
A.P. (DIR Series) Circular No. 3
July 11, 2012
To,
All Authorised Dealer Category - I Banks
Madam / Sir,
Risk Management and Inter Bank Dealings
Attention of Authorized Dealers Category – I (AD Category – I) banks is invited to the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 dated May 3, 2000 [ Notification No. FEMA/25/RB-2000 dated May 3, 2000 ] as amended from time to time and A.P. (DIR Series) Circular No.58 dated December 15, 2011 .
2. Under the extant regulations, the facility of cancellation and rebooking is not permitted for forward contracts, involving Rupee as one of the currencies, booked by residents to hedge current and capital account transactions.
However, forward contract(s), booked by residents to hedge capital account transactions for tenor greater than one year, if cancelled with one AD Category I bank can be rebooked with another AD Category I bank, subject to the following conditions:
the switch is warranted by competitive rates on offer, termination of banking relationship with the AD Category I bank with whom the contract was originally booked;
the cancellation and rebooking are done simultaneously on the maturity date of the contract; and
the responsibility of ensuring that the original contract has been cancelled rests with the AD Category I bank who undertakes rebooking of the contract.
3. On a review, it has been decided to extend the above flexibility in regard to rollover of contracts by switching AD Category banks on the maturity date of the contract, to all hedge transactions undertaken by residents.
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 are without prejudice to permissions/approvals, if any, required under any other law.
Yours faithfully,
(Rudra Narayan Kar)
Chief General Manager
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2012-13/124 · issued 11 Jul 2012. The plain-English explanation above is BankPulse’s own independent summary.
Train staff on the expanded scope, covering both current and capital account hedges, and ensure simultaneous execution on maturity date.
📜 Compliance
Update internal policies to allow cancellation and rebooking of forward contracts with another AD bank for all resident hedge transactions on maturity.
Implement verification procedures to confirm original contract cancellation before rebooking with a new AD bank.
Communicate the new flexibility to corporate and retail clients to enhance service offerings.
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, Resident corporate hedgers, Retail customers with forward contracts, Treasury and risk management teams), your first concrete step on “RBI eases rules for switching AD banks on hedge rollovers” is: “Update internal policies to allow cancellation and rebooking of forward contracts with another AD bank for all resident hedge transactions on maturity.” (RBI issued this 11 Jul 2012).
Circular: RBI/2012-13/124 -- RBI eases rules for switching AD banks on hedge rollovers
Issued: 11 Jul 2012
Action required: Update internal policies to allow cancellation and rebooking of forward contracts with another AD bank for all resident hedge transactions on maturity.
Action required: Implement verification procedures to confirm original contract cancellation before rebooking with a new AD bank.
Action required: Train staff on the expanded scope, covering both current and capital account hedges, and ensure simultaneous execution on maturity date.
Action required: Communicate the new flexibility to corporate and retail clients to enhance service offerings.
Owner: ____________ Target date: ____________
Board/committee approval needed? Y / N
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.
💬 Banker Discussion
Discuss this circular with fellow bankers — reply, upvote what helps, report what doesn’t belong. Be professional; no client data. Views are the commenter’s own, not BankPulse’s.
BankPulse Compliance Evidence Pack — generated 03 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=7441&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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