Cross-border rupee derivative turnover was about $60bn in April 2025 — roughly two-thirds of outright forward market activity — and offshore positions, estimated near $40bn, have amplified exchange-rate volatility. To capture those flows, the Reserve Bank of India will require banks to report at least 70% of offshore rupee derivative trades from February 2027. Domestic lenders already report all derivative positions, while many foreign banks currently declare only trades executed by their India units.

What the change requires

The central bank's plan would extend reporting obligations to offshore rupee derivative transactions carried out by banks' overseas affiliates and related parties. Under the timeline set out by regulators, lenders would have to supply data covering at least 70% of those transactions from February 2027. Domestic banks already report all derivatives transactions, including those booked through their overseas offices. Foreign banks currently report only the trades executed by their India units.

The RBI's stated rationale is straightforward: better data should give market participants and the central bank more accurate price discovery in rupee forwards and derivatives. That follows a period in which the offshore market had an outsized influence on the rupee's path. The Bank for International Settlements estimated cross-border trades involving the rupee at roughly $60bn in April 2025 — about two-thirds of outright forward market turnover at that time — and other industry estimates put the size of the large offshore positions targeted by the proposal at around $40bn.

Why the central bank wants the data

RBI officials say opaque offshore trades made it harder to manage the rupee and added to foreign-exchange market volatility. The central bank has already moved to curb trades that tried to profit from price differences between non-deliverable forwards (NDFs) traded offshore and local forward contracts traded onshore; the unwinding of some such positions coincided with a subsequent strengthening of the rupee.

By widening the reporting net, the RBI intends to capture a fuller picture of cross-border derivative flows. Officials argue that better visibility should improve price formation in both offshore and domestic markets and reduce the scope for positions to build up outside regulators' sight.

Resistance from foreign banks and legal concerns

Some foreign lenders have told regulators they're concerned that mandatory reporting of trades executed outside India could run into legal restrictions in the jurisdictions where those trades take place. Those firms have argued the requirement would have an extra-territorial effect.

RBI officials and other observers counter that banks licensed to operate in India must comply with reporting obligations on rupee transactions. They say the claim of extra-territoriality doesn't hold because the transactions concern an Indian currency and fall within the regulator's remit when performed on behalf of entities tied to Indian banks. Still, implementing the rule will require practical cooperation and, in some cases, formal arrangements with other central banks and supervisors.

Operational and market implications

Collecting a high share of offshore trades means building systems that can consolidate data across multiple booking centres and legal entities. Banks will need to agree on data formats, transmission protocols and safeguards for the confidentiality of client information.

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The rule requires lenders to cover at least 70% of offshore rupee derivative transactions from February 2027. RBI officials say putting the measure into practice will require practical cooperation and, in some cases, formal arrangements with other central banks and supervisors.

This article was created with AI assistance.