What changed
RBI replaced the earlier single forex exposure limit with a dual limit: Net Overnight Open Position Limit (NOOPL) for capital charge on forex risk, capped at 25% of Tier I and Tier II capital, and a separate limit for positions involving Rupee (NOP-INR) for exchange rate management. Restrictions on open positions in Rupee pairs (overnight and intra-day) imposed via earlier circulars (Dec 2011, May 2012, July 2012) have been withdrawn.
What it means for you
Banks now have more flexibility to manage Rupee forex positions as the earlier caps are removed, but must adhere to a stricter capital-linked NOOPL ceiling. The dual limit structure separates risk capital calculation from exchange rate management, requiring banks to monitor both limits independently. The continued ban on netting exchange-traded and OTC positions means banks must maintain separate books for these markets.
What you must do
- Review and revise your bank's Board-approved forex exposure limits to comply with the new dual structure: NOOPL (max 25% of capital) and NOP-INR.
- Ensure NOOPL is calculated as per the prescribed method (net spot + net forward + net options) and communicated to RBI immediately.
- Maintain separate position tracking for exchange-traded (futures/options) and OTC markets; do not net or offset positions across these markets.
- For trading member AD Category-I banks, enforce the exchange position limit of USD 100 million or 15% of open interest, whichever is lower.
Who it affects
All Authorised Dealer Category-I banks (Indian and foreign banks with Indian branches), Treasury and risk management departments of AD Category-I banks, Foreign Exchange Dealers Association of India (FEDAI) members
What is the new NOOPL cap and how is it calculated?
The Net Overnight Open Position Limit (NOOPL) must be fixed by the bank's Board and cannot exceed 25% of the bank's total capital (Tier I + Tier II). It is calculated as the sum of net spot position, net forward position, and net options position for each foreign currency.
Are the restrictions on Rupee open positions completely removed?
Yes, RBI has withdrawn the restrictions on open positions involving Rupee (both overnight and intra-day) that were imposed via circulars in December 2011, May 2012, and July 2012. However, banks must now manage a separate NOP-INR limit for exchange rate management.
Can we net exchange-traded positions with OTC positions?
No. The circular explicitly states that positions in exchanges (futures and options) cannot be netted or offset by positions in the OTC market, and vice versa. Exchange positions must be liquidated only in the exchanges.