Indian Banks Face Nearly $500 Million FX Losses After RBI Position Cap: Crisil Coalition Greenwich

Indian banks incurred 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 those losses as market spreads widened and positions were normalised, the research found.

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 were required to unwind their positions by April 10, triggering a sharp adjustment in their trading books.

The move came amid heightened rupee volatility, foreign-investor outflows and strong corporate demand for currency hedging, adding pressure on banks’ ability to manage their FX exposures.

“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.

Tighter FX Limits Hit Banks’ Trading Operations

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

Banks later recovered part of their initial losses as market spreads widened. Dealers began pricing in tighter balance-sheet capacity and higher execution risks, helping improve trading conditions for banks.

On April 20, the RBI withdrew some of its earlier instructions and permitted limited exceptions for related-party transactions, easing some of the operational pressure on lenders.

“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.

Crude Oil Prices Add To Rupee Volatility

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

India imports about 85% of its crude oil and around 50% of its natural gas, according to the report.

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

Hazaria said the rupee’s resilience going forward would depend on a combination of RBI policy, recovery in capital flows, global risk sentiment and India’s ability to manage its structural dependence on energy imports.