RBI expands onshore INR NDDC market for residents and banks
Current · Source: Reserve Bank of India · RBI/2023-24/36 · issued 06 Jun 2023 · ~1 min read
Quick answerRBI now permits AD Cat-I banks at IFSC to offer INR NDDCs to resident non-retail users for hedging, with INR cash settlement. Inter-bank and cross-border NDDCs can also be cash-settled in INR or any foreign currency, deepening the onshore derivatives market.
The rule, in the simplest words
Banks in IFSC (a special finance zone) can now sell INR NDDCs (a type of contract that pays the difference in value, not the actual currency) to big Indian companies and other non-retail users (not regular people) for hedging (protecting against money risk).
These contracts must be settled in cash in INR (Indian Rupees), not in foreign money.
When two banks trade NDDCs, or a bank trades with a person outside India, they can choose to settle in INR or any foreign currency.
How it plays out — a real example
A forex & trade-finance officer in Indore, Priya, works for a bank with an IFSC unit. A large jewelry exporter wants to hedge against rupee-dollar swings. Priya now offers them an INR NDDC through the IFSC, settled in rupees, so the exporter avoids offshore markets and keeps costs low.
What changed
Previously, only persons resident outside India could access INR NDDCs through IFSC Banking Units (IBUs), settled in foreign currency. Now, resident non-retail users can hedge using INR NDDCs via IBUs, with cash settlement in INR. Additionally, NDDC transactions between two AD Cat-I banks or between an AD Cat-I bank and a non-resident can be cash-settled in INR or any foreign currency, offering more flexibility.
What it means for you
This move allows Indian corporates and other non-retail entities to hedge INR exposure more efficiently onshore, reducing reliance on offshore NDDC markets. For banks, it opens new business lines in INR derivatives with residents and simplifies settlement options, potentially increasing liquidity and lowering costs. Lenders must update their risk management frameworks and compliance systems to handle these new contract types and settlement currencies.
What you must do
Update internal policies and systems to offer INR NDDCs to resident non-retail users through IBUs.
Ensure cash settlement processes for NDDCs are compliant with INR and foreign currency settlement rules.
Train staff on revised Master Direction amendments, especially classification of users and settlement flexibility.
Review and amend existing derivative contracts and documentation to align with new NDDC definitions and settlement options.
Who it affects
AD Cat-I banks operating IFSC Banking Units (IBUs), Resident non-retail users (e.g., corporates, financial institutions) seeking INR hedging, Non-resident entities entering NDDCs with Indian banks, Compliance and risk management teams at AD Cat-I banks
❓ Common questions
When did this circular take effect?
The circular was issued on June 6, 2023. The source does not specify an effective date for the amendments; banks should refer to the Master Direction as amended from that date.
📜 Read the original circular — full text as issued by RBI
RBI/2023-24/36
A. P. (DIR Series) Circular No. 05
June 06, 2023
All Authorised Dealer Category – I Banks
Madam / Sir,
Risk Management and Inter-Bank Dealings - Non-deliverable derivative contracts (NDDCs)
Please refer to Paragraph 1 of the Statement on Developmental and Regulatory Policies announced as a part of the first Bi-monthly Monetary Policy Statement for 2023-24 dated April 06, 2023 regarding development of the onshore non-deliverable derivative market. Attention of Authorised Dealers Category – I (AD Cat-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 Master Direction – Risk Management and Inter-Bank Dealings dated July 5, 2016 , as amended from time to time.
2. As per the extant regulatory framework, AD Cat-I banks operating International Financial Services Centre (IFSC) Banking Units (IBUs) are permitted to offer non-deliverable derivative contracts (NDDCs) to persons resident outside India. Such derivatives are cash-settled in foreign currency. With a view to developing the onshore INR NDDC market and providing residents the flexibility to efficiently design their hedging programmes, it has been decided to permit:
(a) AD Cat-I banks operating IBUs to offer NDDCs involving INR to resident non-retail users for the purpose of hedging. Such transactions shall be cash settled in INR; and
(b) The flexibility of cash settlement of NDDCs transactions between two AD Cat-I banks, and between an AD Cat-I bank and a person resident outside India in INR or any foreign currency.
3. Accordingly, the amendments being made to the Master Direction – Risk Management and Inter-Bank Dealings dated July 5, 2016 , as amended from time to time, are placed at Annex herewith.
4. 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,
(Dimple Bhandia)
Chief General Manager
Annex
S. no.
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2023-24/36 · issued 06 Jun 2023. The plain-English explanation above is BankPulse’s own independent summary.
Ensure cash settlement processes for NDDCs are compliant with INR and foreign currency settlement rules.
Train staff on revised Master Direction amendments, especially classification of users and settlement flexibility.
Review and amend existing derivative contracts and documentation to align with new NDDC definitions and settlement options.
💻 IT / Systems
Update internal policies and systems to offer INR NDDCs to resident non-retail users through IBUs.
Grouped from the action items above — a single circular may involve more than one team.
Worked example & action-note template
Example: if you are an IT/Systems lead at a bank this circular applies to (AD Cat-I banks operating IFSC Banking Units (IBUs), Resident non-retail users (e.g., corporates, financial institutions) seeking INR hedging, Non-resident entities entering NDDCs with Indian banks, Compliance and risk management teams at AD Cat-I banks), your first concrete step on “RBI expands onshore INR NDDC market for residents and banks” is: “Update internal policies and systems to offer INR NDDCs to resident non-retail users through IBUs.” (RBI issued this 06 Jun 2023).
Circular: RBI/2023-24/36 -- RBI expands onshore INR NDDC market for residents and banks
Issued: 06 Jun 2023
Action required: Update internal policies and systems to offer INR NDDCs to resident non-retail users through IBUs.
Action required: Ensure cash settlement processes for NDDCs are compliant with INR and foreign currency settlement rules.
Action required: Train staff on revised Master Direction amendments, especially classification of users and settlement flexibility.
Action required: Review and amend existing derivative contracts and documentation to align with new NDDC definitions and settlement options.
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.
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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=12509&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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