What changed
Previously, cancellation and rebooking of forward contracts involving rupee was not permitted for hedging current and capital account transactions. Now, exporters get a 25% flexibility on contracts booked in a financial year. Separately, AD Category-I banks can now exclude net options positions and overseas branch positions from their Net Overnight Open Position Limit (NOOPL), with board-approved sub-limits.
What it means for you
Exporters gain operational flexibility to manage currency risk by partially cancelling and rebooking forward contracts, which can help them optimize hedging costs. For banks, the NOOPL relaxation reduces capital charge and compliance burden, allowing more efficient management of forex positions. Banks must get board approval for the new sub-limits and inform RBI.
What you must do
- Update internal hedging policies to allow exporters to cancel and rebook up to 25% of forward contracts booked in a financial year.
- Review and revise NOOPL framework to exclude net options positions and overseas branch positions, with board-approved sub-limits.
- Communicate the revised NOOPL sub-limits to RBI for approval.
- Notify customers and constituents about the new hedging flexibility for exporters.
Who it affects
AD Category-I banks, Exporters using forward contracts for hedging, Treasury and risk management teams of banks
Can all forward contracts be cancelled and rebooked under this circular?
No, only forward contracts booked by exporters to hedge contracted export exposures are eligible, and only up to 25% of the contracts booked in a financial year.
Do banks need RBI approval for the new NOOPL sub-limits?
Yes, the board must fix separate limits for net options positions and overseas branch positions, and these must be communicated to RBI for approval.