India is set to move forward with a proposal requiring banks to report offshore rupee derivative trades, despite objections from lenders, according to two sources familiar with the matter.
The move is aimed at increasing transparency in a market that has been contributing to volatility in the domestic currency.
In February, RBI proposed that banks disclose rupee foreign exchange derivative transactions conducted globally by their related entities.
The central bank believes that such reporting would support more efficient price discovery in currency markets.
Under the proposal, lenders would be required to share data on at least 70% of these derivative transactions starting February 2027.
Currently, domestic banks must report all derivative trades, including those executed through overseas offices.
However, foreign banks only report trades conducted by their India-based units, excluding offshore transactions.
Levelling the playing field
The RBI’s proposal is also intended to create parity between Indian and foreign lenders.
According to one source familiar with the central bank’s thinking, the lack of transparency around offshore non-deliverable forward trades has complicated the RBI’s efforts to manage the rupee.
“There was no clarity on what these NDF trades were, making the RBI’s task (of managing the rupee) complicated,” the source said, as mentioned in Reuter’s report.
Both sources spoke on condition of anonymity as they are not authorised to engage with the media.
The RBI did not immediately respond to a request for comment.
Offshore markets hold significant sway
The offshore forward market has grown in influence over the rupee’s exchange rate, particularly after the RBI allowed Indian banks and companies to participate more actively.
Data from the Bank for International Settlements indicates that cross-border rupee trades reached approximately $60 billion in April 2025, accounting for nearly two-thirds of total turnover in the outright forward market.
The central bank has recently taken steps to curb trades that exploit pricing differences between offshore NDF markets and domestic forward markets.
These positions were estimated at around $40 billion.
Speaking on Wednesday, RBI Governor Sanjay Malhotra said such trades had contributed to foreign exchange volatility.
He noted that the unwinding of these positions has helped the rupee recover to near 92.50 per dollar from a record low of around 95.
Banks raise legal and operational concerns
Foreign banks have expressed strong reservations about the proposal, citing potential conflicts with regulations in jurisdictions where offshore trades are executed.
Two senior treasury officials directly aware of the discussions said that sharing such data could breach local compliance rules.
However, one source rejected the argument that the reporting requirements are “extra-territorial,” stating that banks operating in India cannot treat rupee-related reporting obligations as outside the RBI’s jurisdiction.
Implementation challenges remain
Even if the RBI proceeds with the plan, implementation could be complex.
Treasury officials noted that reporting transactions conducted in other countries would require coordination with multiple central banks, which could prove difficult.
The officials declined to be identified due to a lack of authorisation to speak publicly.
The proposal underscores the RBI’s broader efforts to strengthen oversight of currency markets, though it may face hurdles in balancing regulatory goals with global compliance constraints.
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