Indian banks suffered nearly $500 million in losses on their foreign exchange trading books in the first half of 2026 after the Reserve Bank of India forced lenders to unwind positions under new position limits, according to a report by Crisil Coalition Greenwich.
What the report found
The RBI's March 27 directive capped authorised dealer banks' end-of-day onshore rupee net open positions at $100 million, requiring lenders to unwind their positions by April 10. The report says the short implementation window forced banks to unwind or rebalance quickly at a time of elevated rupee volatility, foreign-investor outflows and heavy corporate hedging demand.
"The short implementation window for the new RBI rules forced banks to unwind or rebalance positions quickly at a time of elevated rupee volatility, foreign-investor outflows and heavy corporate hedging demand," said Nitin Agicha, vice-president of Market Structure and Technology at Crisil Coalition Greenwich.
Partial recovery since
Banks subsequently recovered around $400 million of those losses as market spreads widened and positions were normalised, the research showed. The tighter limits also reduced banks' ability to warehouse foreign exchange risk and provide liquidity, while restrictions on related-party derivatives limited the ability of some banks to offset exposures.
The central bank later withdrew some of its earlier instructions in April, allowing limited exceptions for related-party transactions that eased some operational pressure on banks.
Why it matters
The episode underscores how regulatory changes can ripple through trading desks during periods of currency stress. The report also identified higher crude oil prices as a key source of foreign exchange volatility, given India's dependence on imported energy — a theme that continues to weigh on the rupee, which slid to a two-month low near 96.31 per dollar this week amid surging global bond yields.
Sources:
Lokmat Times: Indian banks' FX trading losses hit $500 million after RBI position cap
Flash Finance: India Business Brief, October 02, 2026
What the report found
The RBI's March 27 directive capped authorised dealer banks' end-of-day onshore rupee net open positions at $100 million, requiring lenders to unwind their positions by April 10. The report says the short implementation window forced banks to unwind or rebalance quickly at a time of elevated rupee volatility, foreign-investor outflows and heavy corporate hedging demand.
"The short implementation window for the new RBI rules forced banks to unwind or rebalance positions quickly at a time of elevated rupee volatility, foreign-investor outflows and heavy corporate hedging demand," said Nitin Agicha, vice-president of Market Structure and Technology at Crisil Coalition Greenwich.
Partial recovery since
Banks subsequently recovered around $400 million of those losses as market spreads widened and positions were normalised, the research showed. The tighter limits also reduced banks' ability to warehouse foreign exchange risk and provide liquidity, while restrictions on related-party derivatives limited the ability of some banks to offset exposures.
The central bank later withdrew some of its earlier instructions in April, allowing limited exceptions for related-party transactions that eased some operational pressure on banks.
Why it matters
The episode underscores how regulatory changes can ripple through trading desks during periods of currency stress. The report also identified higher crude oil prices as a key source of foreign exchange volatility, given India's dependence on imported energy — a theme that continues to weigh on the rupee, which slid to a two-month low near 96.31 per dollar this week amid surging global bond yields.
Sources:
Lokmat Times: Indian banks' FX trading losses hit $500 million after RBI position cap
Flash Finance: India Business Brief, October 02, 2026