- Aggressive intervention and rule changes by the Reserve Bank of India in March to support the rupee caused disruptions across FX trading desks.
- Indian Banks Recover $400 Million of FX Trading Losses from initial losses of $500 Million in 1H 2026.
October 1, 2026 — Indian Banks recovered $400 Million of FX Trading Losses Amid Market Turbulence and RBI Intervention in the first six months of 2026, according to new research from Crisil Coalition Greenwich.
The RBI Net Open Positions-INR directive issued on 27 March 2026 capped authorized dealer banks’ end-of-day onshore rupee net open positions at US$100 million, forcing foreign and domestic banks to unwind arbitrage positions by the 10 April deadline. The rapid unwinding pushed several banks’ Indian FX trading books toward nearly US$500 million of mark-to-market losses, although around US$400 million was subsequently recovered as market spreads widened and positions were normalized. The move created significant short-term disruption, volatility, and liquidity stress across FX trading desks before markets stabilized.
“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,” says Nitin Agicha, Vice President in Market Structure & Technology at Crisil Coalition Greenwich.
That combination of factors reduced banks’ ability to warehouse risk, disrupted normal market-making activity and increased the cost of adjusting inventories, pushing several FX desks into losses as the deadline approached.
“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,” says Aamir Hazaria, Director of Corporate & Investment Bank Competitor Research & Analytics at Crisil Coalition Greenwich. “Balance-sheet capacity contracted just as demand for liquidity and hedging increased, while restrictions on related-party derivatives and other risk-management channels limited how efficiently some banks could offset exposures.”
After the RBI intervention, dealers priced in scarcer balance-sheet capacity and greater execution risk, allowing many banks to recover part of the initial losses. The RBI’s April 20 decision to withdraw some earlier instructions and permit limited exceptions for related-party transactions also reduced operational pressure.
“Although some of the initial pressure has eased, short-term disruptions across FX desks in the first half of 2026 demonstrated how quickly regulatory constraints can affect dealer revenues, liquidity provision and hedging costs in a concentrated, bank-led market,” says Nitin Agicha.
Surging Oil Prices Driving FX Volatility
The high price of oil is proving to be one of the biggest drivers of FX market volatility. India is among the world’s largest importers of crude oil, sourcing roughly 85% of its crude oil and 50% of its natural gas from abroad. Between January and July 2026, India’s import bill increased by 20%. Despite efforts to diversify crude-oil purchases across global exporters, total imports reached $95.9 billion in 2026, the highest level since 2011. This surge is increasing the draw on India’s FX reserves, which stood at approximately $729.3 billion as of August 21, 2026, to meet domestic demand for petroleum products.
“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,” says Aamir Hazaria.