TITLE: India's Reserve Bank Restricts Foreign Exchange Derivative Contracts Between Authorised Dealers and Related Parties
BODY:
On April 20, 2026, the Reserve Bank of India (RBI) issued a circular restricting foreign exchange derivative contracts involving Indian Rupee (INR) between Authorised Dealers and their related parties. The circular, RBI/2026-27/14 A.P. (DIR Series) Circular No. 07, withdrew previous instructions issued on April 1, 2026, and introduced new limitations on such transactions.
Under the new directive, Authorised Dealers are prohibited from undertaking foreign exchange derivative contracts involving INR with related parties, with two exceptions: cancellation and rollover of existing contracts, and back-to-back transactions with non-related non-resident users conducted in accordance with the Master Direction on Risk Management and Inter-Bank Dealings dated July 5, 2016, as amended.
The RBI defines "related parties" according to Indian Accounting Standard (Ind AS) 24 – Related Party Disclosures, International Accounting Standard (IAS) 24 – Related Party Disclosures, or equivalent accounting standards. The restrictions apply with immediate effect and are issued under Sections 10(4), 11(1), and 11(2) of the Foreign Exchange Management Act (FEMA), 1999. The circular is without prejudice to any permissions or approvals required under other applicable legislation.
This measure forms part of the RBI's ongoing review of risk management practices and inter-bank dealings, reflecting regulatory efforts to manage foreign exchange market stability and mitigate counterparty risks in derivative transactions.
**Reference:** Reserve Bank of India Notification, RBI/2026-27/14 A.P. (DIR Series) Circular No. 07, April 20, 2026