The Reserve Bank of India has directed banks to limit their Net Open Position (NOP) in foreign currency to $100 million per day, effective April 10, 2026, to curb excessive volatility in the rupee. This move comes amid sharp rupee depreciation, rising crude oil prices (above $100/barrel), and geopolitical tensions in West Asia.
The rupee fell below ₹95/$ and closed around ₹94.8, hitting record lows despite RBI intervention. The decline has been driven by capital outflows and global uncertainty, including the impact of the Iran conflict.
What is Net Open Position (NOP)?
- Net Open Position (NOP) refers to the difference between a bank’s total foreign currency assets and liabilities, representing its exposure to exchange rate fluctuations.
- A higher NOP indicates greater risk from currency movements, while a lower NOP reflects reduced speculative exposure.
- The RBI’s cap aims to ensure that banks’ participation in forex markets is driven by balance sheet needs rather than speculative bets.
What Has Changed? (Regulatory Shift)
- Earlier, banks could maintain foreign currency exposure up to 25% of their capital base, allowing large speculative positions.
- Now, RBI has imposed a uniform cap of $100 million, significantly tightening limits.
Banks have been asked to unwind large positions quickly, which is expected to temporarily increase dollar supply and support the rupee. - This marks a shift from direct intervention (selling forex reserves) to regulatory tightening, helping preserve India’s forex reserves.
Pressure on Rupee and Forex Reserves
- The rupee has depreciated by nearly 4% since the West Asia conflict began (Feb 2026), breaching multiple levels (₹92, ₹93, ₹94).
- India’s forex reserves declined by over $30 billion to $698.34 billion, mainly due to RBI’s dollar sales to defend the currency.
- A major factor behind rupee weakness is Foreign Portfolio Investor (FPI) outflows, with investors selling Indian assets consistently due to:
- Global market uncertainty
- Rising oil prices
- Depreciating rupee
- Concerns over remittances and growth
Concerns Raised by Banks
- Banks have expressed concerns over the immediate implementation of the cap and have sought a transition period of 3 months.
- They may be forced to unwind $11–15 billion worth of positions, potentially leading to mark-to-market losses and impacting profits.
- The cap may also reduce currency arbitrage opportunities, affecting treasury income and profitability.
Broader Market Implications
- Stricter domestic regulations may shift forex trading to offshore markets, where oversight is weaker.
- This could increase speculative pressure against the rupee, potentially adding to volatility instead of reducing it.
- The move highlights fragility in India’s external sector, driven by rising oil imports and capital outflows.
Lessons from Past Currency Crises
During events like the 2008 Global Financial Crisis and 2013 Taper Tantrum, RBI adopted multiple strategies under Raghuram Rajan:
- FCNR(B) deposits to attract foreign currency inflows (>$30 billion mobilised). FCNR(B) Accounts are Fixed deposit accounts for NRIs to hold foreign currency in India.
- Dollar swap windows for oil companies
- Repo rate hikes to control inflation and boost investor confidence