In short: On 12 October 2026 the RBI issued A.P. (DIR Series) Circular No. 27. Authorised Dealers would offer INR non-deliverable derivative contracts to non-residents only for hedging. They would also keep a Foreign Exchange Risk Reserve of 20 per cent of notional, in cash with the RBI, for INR contracts. It applies to contracts undertaken after issuance.
Key facts
| Authority | Reserve Bank of India, Financial Markets Regulation Department |
|---|---|
| Instrument | RBI/2026-27/293, A.P. (DIR Series) Circular No. 27, Risk Management and Inter-Bank Dealings, addressed to all Authorised Dealers |
| Issue date | 12 October 2026 (circular header; RBI notifications list) |
| Effective date | Not stated as a date. Para 4: applicable to foreign exchange derivative contracts undertaken after the issuance of these Directions |
| Applies to | Authorised Dealers (AD) generally. The NDDC limit is framed around AD Category-I banks with an operating IFSC Banking Unit and Standalone Primary Dealers authorised as AD Category-III |
| Status | Issued 12 October 2026. Not shown as amended or withdrawn on RBI pages checked on 13 October 2026 |
| Official source | https://rbi.org.in/Scripts/NotificationUser.aspx?Id=13739&Mode=0 |
| Last verified | 13 October 2026, against the RBI notifications list, the circular page and the Master Direction page |
What changes for NDDCs?
The circular starts from the Master Direction on Risk Management and Inter-Bank Dealings dated 5 July 2016. Para 2.3(iii) of Section I of Part A of that Direction, as printed on the RBI site, lets Authorised Dealer Category-I banks with an operating IFSC Banking Unit and Standalone Primary Dealers authorised as Authorised Dealer Category-III offer NDDCs involving INR “to resident users for the purpose of hedging and to non-resident users without any restriction in terms of purpose”.
The circular recalls the non-resident limb of that wording and says: “On a review, it has been decided that henceforth, Authorised Dealers shall offer NDDCs involving INR to a non-resident user only for the purpose of hedging.” An NDDC here is a non-deliverable foreign exchange derivative contract, one that is cash-settled with no delivery of the notional amount.
The circular uses the words “Authorised Dealers” for the new restriction. It does not change the resident-user wording of para 2.3(iii), which already said “for the purpose of hedging”.
What is the Foreign Exchange Risk Reserve?
Para 3 sets out four points. Each is quoted or closely paraphrased from the text.
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Which contracts
An Authorised Dealer must maintain a FERR for foreign exchange derivative contracts involving INR that it undertakes “for hedging the currency risk of its own assets and liabilities” (para 3(i)).
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Which direction
The FERR applies to all such contracts “where the Authorised Dealer is purchasing foreign currency against INR” (para 3(ii)).
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How much
It equals 20 per cent of the INR equivalent of the notional amount of each derivative contract (para 3(iii)).
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How it is held
It is deposited and maintained by way of cash in India with the Reserve Bank on a daily basis, and kept until the contract terminates (para 3(iv)).
Who is covered?
The circular is addressed to “All Authorised Dealers”. Para 2 names two groups: Authorised Dealer Category-I banks with an operating IFSC Banking Unit, and Standalone Primary Dealers authorised as Authorised Dealer Category-III. It then states the new NDDC restriction for Authorised Dealers in general.
The text does not list other categories separately. It does not say whether non-resident users, or any other class of user, are exempt from anything.
When does it apply, and what is not stated?
Para 4: applicable to contracts undertaken after the issuance of these Directions. The circular is dated 12 October 2026.
The circular does not state the following, so this post makes no claim on them:
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No commencement date
There is no separate effective date or phase-in period. How “after the issuance” is counted on the day itself is not explained.
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Existing contracts
The text says nothing about contracts already running, or about renewals and rollovers of them.
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Reporting and thresholds
The circular sets no notional threshold, no exemption and no reporting format for the FERR. Circular No. 26 of 10 October 2026 (RBI/2026-27/292) sets a separate FERR for contracts undertaken with users, with a USD two million threshold and daily reporting through CIMS. Circular No. 27 covers contracts an Authorised Dealer undertakes to hedge its own assets and liabilities, and does not mention No. 26. Neither text amends the other, so both appear to apply to their own contract types.
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Master Direction text
The Master Direction page on rbi.org.in reads “Updated as on October 01, 2026” and contains no reference to the FERR, so it does not yet reflect this circular.
Is it amended or superseded?
On 13 October 2026 the RBI notifications list showed the circular on the 12 October 2026 entry. The circular page showed no amendment or withdrawal note. The circular states it is issued under Sections 10(4) and 11(1) of the FEMA, 1999 and Section 45W of the Reserve Bank of India Act, 1934, without prejudice to approvals required under other law (para 5).
What should firms do next?
The four points below are practical advice, not requirements of the circular:
- Map your NDDC desk.List INR NDDCs with non-resident users and check each carries a documented hedging purpose.
- Tag contracts by date.Record the trade date so contracts undertaken after issuance can be separated from earlier ones.
- Plan cash for the reserve.Ask treasury to model daily cash placed with the RBI at 20 per cent of the INR notional for in-scope purchases of foreign currency.
- Read No. 25, No. 26 and No. 27 together.Three circulars on risk management and inter-bank dealings appeared within three days. Confirm the combined position with your RBI contact.
Frequently asked questions
Who can offer INR NDDCs to non-residents, and what has changed?
Para 2 of the circular recalls that Authorised Dealer Category-I banks with an operating IFSC Banking Unit and Standalone Primary Dealers authorised as Authorised Dealer Category-III may offer NDDCs involving INR to non-resident users without any restriction in terms of purpose. It then says Authorised Dealers shall offer NDDCs involving INR to a non-resident user only for the purpose of hedging.
How much is the Foreign Exchange Risk Reserve and how is it held?
Para 3 says the FERR equals 20 per cent of the INR equivalent of the notional amount of each derivative contract. It is deposited and maintained in cash in India with the Reserve Bank on a daily basis, and kept until the contract terminates.
When does Circular No. 27 start to apply?
Para 4 says the Directions apply to foreign exchange derivative contracts undertaken after the issuance of these Directions. The circular is dated 12 October 2026. It does not give a separate commencement date or say how contracts already running are treated.
Does Circular No. 27 replace the earlier FERR circular of 10 October 2026?
The circular does not say so. It does not refer to Circular No. 26 (RBI/2026-27/292) at all. No. 26 covers FERR on contracts undertaken with users; No. 27 covers contracts the Authorised Dealer undertakes for its own assets and liabilities. Both appear on the RBI notifications list, and the RBI page for No. 26 shows no amendment note. Read them side by side and confirm the combined position with your RBI contact.
Sources (official, verified 13 October 2026)
- RBI, A.P. (DIR Series) Circular No. 27, RBI/2026-27/293, 12 October 2026 (circular page) https://rbi.org.in/Scripts/NotificationUser.aspx?Id=13739&Mode=0
- RBI, Notifications list showing the 12 October 2026 entry https://rbi.org.in/Scripts/NotificationUser.aspx
- RBI, Master Direction – Risk Management and Inter-Bank Dealings, 5 July 2016 (page shows: Updated as on October 01, 2026) https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10485
- RBI, A.P. (DIR Series) Circular No. 26, RBI/2026-27/292, 10 October 2026, Foreign Exchange Risk Reserve https://rbi.org.in/Scripts/NotificationUser.aspx?Id=13738&Mode=0
- RBI, A.P. (DIR Series) Circular No. 25, RBI/2026-27/291, 10 October 2026 https://rbi.org.in/Scripts/NotificationUser.aspx?Id=13737&Mode=0
- India
- RBI
- Authorised Dealers
- NDDC
- Non-deliverable derivatives
- Foreign Exchange Risk Reserve
- FEMA
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