Forward booking of rupee should be backed by genuine Transactions

Recent measures by the Reserve Bank of India (RBI) on the cancellation and rebooking of forward contracts—have raised concerns about their impact on genuine business operations.

At the heart of the issue is RBI’s move to prevent corporates from misusing forward contracts. Many companies were earlier cancelling existing contracts and rebooking them at more favorable rates as the rupee weakened, effectively turning hedging tools into instruments of speculation. To address this, RBI stepped in and restricted such practices.

However, the challenge lies in distinguishing speculation from legitimate risk management. In today’s uncertain global environment—marked by geopolitical tensions, disrupted supply chains, and delayed payments—businesses often need flexibility in managing their foreign exchange exposure.

Exporters, for instance, may face delays in receiving payments, requiring them to extend or “roll over” their forward contracts. But technically, a rollover involves cancelling an existing contract and booking a new one, which now falls under RBI’s restrictions. This has created confusion and anxiety among corporates.

Banks, too, are seeking clarity, especially regarding the hedging of external commercial borrowings (ECBs). Since these are long-term loans, they require periodic renewal of hedging contracts. Without clear guidelines, there is uncertainty about how such rollovers will be treated under the new rules.

Another concern is the practice of “overbooking,” where companies enter into forward contracts exceeding their actual exposure to benefit from currency movements. To address this, banks may now require stricter documentation or declarations to ensure that all forward bookings are backed by genuine transactions. While this could improve transparency, it may also increase compliance requirements for businesses.

Meanwhile, RBI’s parallel efforts to limit access to offshore Non-Deliverable Forward (NDF) markets have also had mixed results. Although restrictions have reduced speculative activity by domestic players, large corporates with global operations continue to exploit price differences between offshore and onshore markets. This highlights the difficulty of regulating currency markets in an interconnected global financial system.

The RBI has proposed increased transparency, including sharing of offshore trading data by multinational banks. However, this has faced resistance from foreign institutions, adding another layer of complexity to the regulatory landscape.

 👇 Please Note 👇

Thank you for reading our article!

If you don’t received industries updates, News & our daily articles

please Whatsapp your Wapp No. or V Card on 8278298590, your number will be added in our broadcasting list.