{"id":90730,"date":"2026-10-16T11:09:18","date_gmt":"2026-10-16T05:39:18","guid":{"rendered":"https:\/\/www.taxaj.com/learn\/?p=90730"},"modified":"2026-10-16T11:09:20","modified_gmt":"2026-10-16T05:39:20","slug":"rbi-foreign-exchange-risk-reserve-ferr","status":"publish","type":"post","link":"https:\/\/www.taxaj.com/learn\/rbi-foreign-exchange-risk-reserve-ferr\/","title":{"rendered":"RBI Foreign Exchange Risk Reserve: 20% Reserve on Large Import Hedges"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\"><strong>For forex hedges booked after 10 October 2026, banks must keep a Foreign Exchange Risk Reserve (FERR) with the RBI equal to 20 per cent of each large contract in which their customer buys foreign currency against rupees.<\/strong> The requirement sits on the bank, not on your company. But it reaches you: it applies to the forwards and options that importers and other foreign-currency payers book to cover current account payments above USD 2 million per contract. The RBI issued FAQs on 15 October 2026 explaining how it works.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Here is what changed, which hedges are caught, and what to check with your bank before your next large booking or rollover.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">What the RBI issued<\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>A.P. (DIR Series) Circular No. 26, 10 October 2026:<\/strong> Authorised Dealers (banks) must maintain FERR on INR foreign exchange derivative contracts with users where the user buys foreign currency against INR to hedge a current account transaction and the contract&#8217;s notional value exceeds USD 2 million equivalent.<\/li>\n\n\n\n<li><strong>A.P. (DIR Series) Circular No. 27, 12 October 2026:<\/strong> extends FERR to INR derivatives that banks use to hedge their own assets and liabilities, where the bank buys foreign currency against INR. It also restricts non-deliverable INR derivatives offered to non-residents through IFSC Banking Units to hedging only.<\/li>\n\n\n\n<li><strong>RBI FAQs, 15 October 2026:<\/strong> clarify scope, the threshold, exclusions, rollovers and cancellations.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Which hedges are caught<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">A contract with a user falls under FERR only if all four conditions hold:<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><thead><tr><th>Condition<\/th><th>What the RBI says<\/th><\/tr><\/thead><tbody><tr><td>Currency pair<\/td><td>The contract involves INR. Non-INR pairs (say USD\/EUR) are outside FERR.<\/td><\/tr><tr><td>Direction<\/td><td>The user buys foreign currency against INR. Contracts where the user sells foreign currency, the typical exporter hedge, are excluded.<\/td><\/tr><tr><td>Purpose<\/td><td>It hedges a current account transaction, such as an import payment. Capital account hedges are excluded, and so are current account outflows that arise from a capital account transaction, such as ECB interest or dividends to non-residents.<\/td><\/tr><tr><td>Size<\/td><td>The notional exceeds USD 2 million equivalent per contract. Contracts of USD 2 million or less are not covered. For an option structure, the leg with the highest notional is used.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\">How the reserve works<\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Amount:<\/strong> 20 per cent of the INR equivalent of each contract&#8217;s notional. In the RBI&#8217;s own example, a USD 10 million contract at \u20b995 to the dollar has a notional of \u20b995 crore, so the reserve is \u20b919 crore.<\/li>\n\n\n\n<li><strong>Held as cash with the RBI:<\/strong> it sits in the bank&#8217;s current account with the RBI, alongside CRR, from the working day after the contract is booked until a day after it ends. It <strong>earns no interest<\/strong> and does not count as high-quality liquid assets.<\/li>\n\n\n\n<li><strong>Partial cancellation:<\/strong> the reserve continues pro rata on the remaining notional, and stops once that falls to USD 2 million or less.<\/li>\n\n\n\n<li><strong>Rollovers count as new contracts.<\/strong> A hedge booked before the Directions is not covered, but if it is rolled over afterwards, the rolled contract is treated as fresh and FERR applies if it meets the conditions.<\/li>\n\n\n\n<li><strong>No splitting.<\/strong> Circular 26 says splitting a transaction across banks to stay under the threshold is a violation, and the FAQs tell banks to guard against structuring.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">What it does not change<\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Your company does not deposit anything with the RBI.<\/strong> The obligation and the daily reporting through the RBI&#8217;s CIMS system belong to the bank.<\/li>\n\n\n\n<li><strong>Exporters&#8217; sell-side hedges, hedges of capital account flows and contracts of USD 2 million or less<\/strong> are outside FERR.<\/li>\n\n\n\n<li><strong>Contracts booked before the Directions<\/strong> are not covered unless they are rolled over.<\/li>\n\n\n\n<li><strong>Pricing is not addressed.<\/strong> The circulars and FAQs do not say whether, or how, banks may pass the cost of an interest-free reserve on to customers.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">What to do now<\/h2>\n\n\n\n<ol class=\"wp-block-list\">\n<li><strong>List your buy-side INR hedges above USD 2 million<\/strong> booked on or after 10 October 2026, and any older ones due for rollover.<\/li>\n\n\n\n<li><strong>Ask your bank in writing<\/strong> whether its forward or option quotes, margins or charges for these contracts will change, and get the answer before your next large booking.<\/li>\n\n\n\n<li><strong>Check the purpose tagging.<\/strong> Whether a payment is a current account item or one arising from a capital account transaction (such as ECB interest or a dividend) decides whether FERR applies, so make sure the underlying exposure documents you give the bank describe it correctly.<\/li>\n\n\n\n<li><strong>Do not break large hedges into smaller contracts or spread them across banks<\/strong> just to stay under USD 2 million. The RBI treats that as a violation.<\/li>\n\n\n\n<li><strong>Brief your treasury and audit teams.<\/strong> Any change in hedge cost feeds into landed import cost and budgeting for the rest of FY 2026-27.<\/li>\n<\/ol>\n\n\n\n<h2 class=\"wp-block-heading\">Need help with FEMA and import payments?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">TAXAJ advises on <a href=\"https:\/\/www.taxaj.com\/foreign-exchange-management-act-fema\" target=\"_blank\" rel=\"noopener\">FEMA compliance<\/a> for importers, exporters and foreign-owned companies, from offices in Delhi, Bengaluru, Goa and Bihar. For the export side, see our explainer on the <a href=\"https:\/\/www.taxaj.com\/learn\/fema-exim-regulations-2026-15-month-export-realisation-rule-explained\/\" target=\"_blank\" rel=\"noopener\">FEMA EXIM Regulations 2026 and the 15-month realisation rule<\/a>. For every other RBI change, see our <a href=\"https:\/\/www.taxaj.com\/fema-rbi-updates\" target=\"_blank\" rel=\"noopener\">FEMA and RBI updates<\/a> page.<\/p>\n\n\n\n<div class=\"wp-block-buttons is-layout-flex wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link wp-element-button\" href=\"https:\/\/bookings.taxaj.com\/\" target=\"_blank\" rel=\"noopener\">Talk to our FEMA team<\/a><\/div>\n<\/div>\n\n\n\n<p class=\"has-small-font-size wp-block-paragraph\"><em>Source: RBI <a href=\"https:\/\/rbi.org.in\/scripts\/NotificationUser.aspx?Id=13738&amp;Mode=0\" target=\"_blank\" rel=\"noopener\">A.P. (DIR Series) Circular No. 26<\/a> dated 10 October 2026, <a href=\"https:\/\/rbi.org.in\/scripts\/NotificationUser.aspx?Id=13739&amp;Mode=0\" target=\"_blank\" rel=\"noopener\">A.P. (DIR Series) Circular No. 27<\/a> dated 12 October 2026, and <a href=\"https:\/\/rbi.org.in\/Scripts\/FAQDisplay.aspx?Id=180\" target=\"_blank\" rel=\"noopener\">FAQs on the Foreign Exchange Risk Reserve<\/a> dated 15 October 2026. Last updated 16 October 2026. This is general information, not advice on any particular case, and it will be updated if the RBI issues further clarification.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>For INR forex hedges booked after 10 October 2026, banks must keep 20% of each buy-side contract above USD 2 million as an interest-free reserve with the RBI. Here is which import hedges are caught and what to check.<\/p>\n","protected":false},"author":1,"featured_media":90729,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_kad_post_transparent":"","_kad_post_title":"","_kad_post_layout":"","_kad_post_sidebar_id":"","_kad_post_content_style":"","_kad_post_vertical_padding":"","_kad_post_feature":"","_kad_post_feature_position":"","_kad_post_header":false,"_kad_post_footer":false,"_kad_post_classname":"","footnotes":""},"categories":[14,13],"tags":[],"class_list":["post-90730","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-fema-fdi","category-news-updates"],"_links":{"self":[{"href":"https:\/\/www.taxaj.com/learn\/wp-json\/wp\/v2\/posts\/90730","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.taxaj.com/learn\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.taxaj.com/learn\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.taxaj.com/learn\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.taxaj.com/learn\/wp-json\/wp\/v2\/comments?post=90730"}],"version-history":[{"count":1,"href":"https:\/\/www.taxaj.com/learn\/wp-json\/wp\/v2\/posts\/90730\/revisions"}],"predecessor-version":[{"id":90731,"href":"https:\/\/www.taxaj.com/learn\/wp-json\/wp\/v2\/posts\/90730\/revisions\/90731"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.taxaj.com/learn\/wp-json\/wp\/v2\/media\/90729"}],"wp:attachment":[{"href":"https:\/\/www.taxaj.com/learn\/wp-json\/wp\/v2\/media?parent=90730"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.taxaj.com/learn\/wp-json\/wp\/v2\/categories?post=90730"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.taxaj.com/learn\/wp-json\/wp\/v2\/tags?post=90730"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}