Indian banks faced $500 million FX losses after RBI position curbs | Finance News

Indian banks faced nearly $500 million in mark-to-market losses on their foreign exchange (FX) trading books in the first half of 2026 after regulatory changes by the Reserve Bank of India (RBI) forced lenders to unwind positions, according to research by Crisil Coalition Greenwich.

 

Banks subsequently recovered around $400 million of the losses as market spreads widened and positions were normalised, the research showed.

 

The losses followed the RBI’s March 27 directive capping authorised dealer banks’ end-of-day onshore rupee net open positions at $100 million.

 

Banks had to unwind their positions by April 10, resulting in a sharp adjustment in trading books.

 

The move came at a time when the rupee was facing volatility, foreign investors were pulling out funds and corporate demand for currency hedging was high, putting additional pressure on banks’ ability to manage FX positions.

  

“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, Market Structure & Technology at Crisil Coalition Greenwich.

 

The tighter limits also reduced banks’ ability to warehouse FX risk and provide liquidity, while restrictions on related-party derivatives limited some banks’ ability to offset exposures, the report said.

 

The subsequent widening in market spreads helped banks recover part of the initial losses as dealers began pricing in tighter balance-sheet capacity and higher execution risks.

 

The RBI on April 20 withdrew some of its earlier instructions and allowed limited exceptions for related-party transactions, easing some operational pressure on banks.

 

“First-half losses in FX were not simply the result of weaker client activity, but a short-term flip in trading due to RBI direction,” said Aamir Hazaria, director, Corporate & Investment Bank Competitor Research & Analytics at Crisil Coalition Greenwich.

 

The research also flagged higher crude oil prices as a key source of FX volatility, given India’s dependence on imported energy.

 

India imports about 85 per cent of its crude oil and 50 per cent of its natural gas, it said.

 

India’s import bill rose 20 per cent between January and July 2026, while total imports reached $95.9 billion, the highest level since 2011, according to the research.

 

“While RBI interventions and tighter controls have helped limit excessive volatility, the rupee’s resilience going forward will depend on a combination of RBI policy, capital-flow recovery, global risk sentiment, and India’s ability to manage its structural dependence on energy imports,” Hazaria said.