Banks seek operational guidelines on maintaining Foreign Exchange Risk Reserve with RBI
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– RBI introduced the Foreign Exchange Risk Reserve (FERR), requiring authorised dealers to maintain 20% cash collateral on INR-denominated forex derivatives above $2 million notional.
– RBI reduced the threshold for undertaking forex derivative transactions without underlying exposure from $100 million to $5 million, alongside rebooking restrictions and enhanced documentation.
– RBI established a special dollar window to meet the entire daily dollar requirements of three public sector oil marketing companies.
RBI sought feedback from four leading banks on the impact of measures announced on Saturday
Banks have sought operational guidelines on maintaining the foreign exchange risk reserve (FERR) with the Reserve Bank of India.
The FERR has been introduced as part of RBI’s measures to curb speculation and contain volatility in the forex market.
FERR Reserve Requirement
Authorised dealers must maintain an FERR in cash with the RBI equal to 20 per cent of the Indian rupee equivalent for foreign exchange derivative contracts with a notional value exceeding $2 million, as mandated by the central bank.
The FERR requirement introduces operational challenges for banks familiar with managing the cash reserve ratio (CRR).
Banks seek clarity
Bank Cost and Recovery Framework
Banks are seeking clarification on cost pass-through mechanisms, calculation methodologies, and operational procedures for reserve remittance to the RBI, including whether requirements should be uniform across institutions.
For example, for every $3 million derivative contract (approximately ₹28.73 crore), a bank would need to park about ₹5.75 crore with the RBI. Banks would not earn any interest on these funds, creating an additional cost that they may seek to recover from clients. However, the absence of clear guidelines on cost calculation and recovery remains a key concern.
The Reserve Bank of India has sought feedback from four leading banks on the impact of the measures announced on Saturday.
Forex Transaction Thresholds and Documentation
The RBI announced restrictions on rebooking of cancelled foreign exchange derivative contracts; reduced the threshold for undertaking foreign exchange derivative transactions without establishing underlying exposure from $100 million to $5 million; introduced FERR for banks; and prescribed additional documentation for verification of underlying exposures.
The RBI alsoopened a special window to meet the entire daily dollar requirements of three public sector oil marketing companies (OMCs) — Indian Oil Corporation Ltd, Hindustan Petroleum Corporation Ltd and Bharat Petroleum Corporation Ltd.
Published on October 12, 2026
FAQs
What is the FERR and who must comply?
Authorised dealers must maintain an FERR in cash with the RBI equal to 20 per cent of the Indian rupee equivalent for foreign exchange derivative contracts with a notional value exceeding $2 million.
What threshold did the RBI set for forex derivative transactions without underlying exposure?
The threshold was reduced from $100 million to $5 million.
What operational challenge do banks face with the FERR?
Banks must park reserves earning no interest, creating additional costs that may be passed to clients, and guidelines on cost calculation and recovery remain unclear.
What special facility did the RBI provide for oil marketing companies?
The RBI opened a special window to meet the entire daily dollar requirements of Indian Oil Corporation, Hindustan Petroleum Corporation, and Bharat Petroleum Corporation.
What restrictions did the RBI impose on cancelled forex derivative contracts?
The RBI imposed restrictions on the rebooking of cancelled foreign exchange derivative contracts.
