Industry Odisha Bureau, Oct 13: The RBI’s October 10 rules ban rebooking cancelled forward contracts. Large importer hedges now carry a 20% cash reserve. Corporate finance heads face a tougher call on dollar risk.
Every importer with a dollar bill due faces the same choice. It can fix a rate today or stay exposed and bet on the rupee. In curbing rupee bets, the RBI has now made that choice harder and costlier. Its new rules, issued on Saturday, 10 October, apply from that date. On Monday, the RBI’s reference rate stood at 95.75 rupees to the dollar.
How a hedge works
A forward contract fixes today the rate for buying or selling dollars later. Think of it as insurance against an unfavourable currency swing. Higher rupee interest rates push the forward rate above today’s rate. This gap, called the forward premium, is paid by importers and earned by exporters.
No second chances
Until now, treasurers could hedge, cancel when the rupee moved their way, and rebook. That route is closed. A contract cancelled with any bank after 10 October cannot be booked again. Rolling a contract over on its maturity date is still allowed. A hedge is now a pledge you keep, not a position you flip.
A price on importer cover
The second rule costs money, and it hits only importers. Banks must hold a cash reserve with the RBI on importer hedges above $2 million. The cash, 20% of the contract’s rupee value, stays there until maturity. Splitting a large hedge to dodge the limit counts as a violation. The circular is silent on paying interest on that cash.
At the 5.50% repo rate, the idle cash costs about 1.1% of contract value yearly. At a 7.5% funding cost, it is nearer 1.5%. For a $3 million, three-month hedge, that could mean up to ₹7.9 lakh more. That assumes banks pass on the full cost. Exporters sell dollars forward, so the reserve does not apply to them. They still face the rebooking ban and new paperwork.
Paperwork above $5 million
The third rule lowers the limit for hedging without documents. It falls from $100 million to $5 million, counted across all banks. Above that, firms must show an invoice or contract before hedging. Every client must also confirm in writing the exposure is not hedged elsewhere.
Waiting has a cost too
Waiting is not free. In September, the one-month forward premium rose from 2.22% to 4.07%, RBI data show. The six-month premium climbed from 3.04% to 3.75%. In the first 25 days of September, forward deals hit about $115 billion. That compares with about $72 billion a year earlier. With the reserve passed on, six-month cover could cost close to 4.85% a year.
Rules that can change
A similar rebooking ban in April lasted just 19 days. China ran a similar 20% reserve from 2022 and scrapped it in March. So corporate finance teams should plan for rules that tighten, hold or ease.
