Key Points from RBI's Guidance on Hedging Deals and Roll‑Over Contracts

In the latest FAQ, the RBI provides clarity on the treatment of hedging deals, options, and roll‑over contracts under the Foreign Exchange Risk Reserve framework. Only contracts that involve the purchase of foreign currency against the rupee for hedging current‑account liabilities fall within the reserve’s ambit. Deals that sell foreign currency for rupees, or that hedge capital‑account transactions, are expressly excluded.

The RBI cautions authorized dealers against structuring derivative transactions to bypass the reserve requirement. Any attempt to fragment a large exposure into multiple smaller contracts below the $2 million threshold will be scrutinized. The reserve amount—20 percent of the rupee‑equivalent notional—must be lodged with the RBI daily and retained until the contract expires, plus an additional day. Detailed logs of each qualifying contract and its corresponding reserve must be maintained and will be subject to regulatory audits.