Rohit Jain, Deputy Governor, RBI
Rohit Jain, Deputy Governor of the Reserve Bank of India, stated that India’s foreign exchange market will be prepared for the upcoming decade once it attains sufficient depth to absorb global shocks, adequate flexibility to support emerging trade and investment forms, and the discipline required to maintain orderly conditions.
Moreover, the market must ensure fairness by providing the same level of service and humility to the smallest users as it does to the largest corporate clients.
“We have made significant strides in achieving the first three objectives, but there is still work to be done on the fourth. I am confident that, through collective effort, we will accomplish our goal,” Jain remarked during his keynote address at the Annual Day of the Foreign Exchange Dealers’ Association of India (FEDAI) on August 14.
The Deputy Governor emphasized that the success of the next phase of reforms will not be measured by the quantity of permissions eliminated, new products introduced, or platforms launched, but rather by the quality, speed, transparency, and accessibility of the foreign exchange services provided to citizens.
Special Rupee Vostro Account (SRVA) Framework
Jain noted that local currencies are expected to assume an increasingly significant role in cross-border trade and payments.
“The Special Rupee Vostro Account (SRVA) framework for invoicing, payment and settlement of international trade in rupees has been implemented keeping in view the evolving dynamics of our international trade,” he said.
He underscored that SRVA’s success will depend on commercial viability, emphasis on trade settlement in local currencies, offering market-determined rates, and strengthening confidence in the settlement ecosystem.
“Opening a SRVA account is the easy part. The harder task involves identifying corridors with genuine two-way flows, building reliable correspondent relationships, quoting competitive conversion and hedging solutions, explaining the mechanics to first-time users, and finding avenues for the productive deployment of rupee balances — all resting on robust internal processes, AML/CFT controls, operational resilience, and, above all, a willingness to facilitate these transactions. I encourage you not to view it solely as a means of reducing reliance on international currencies,” he said.
Jain emphasized that settling cross-border transactions in local currencies results in lower transaction costs, fewer currency mismatches, better settlement efficiency, and the ability to engage in trade where correspondent banking is costly or constrained.
“Policy can create the option. It is the Authorised Dealers who will determine whether this comes to fruition. I am confident that our banks can, and will, rise to the occasion,” he said.
Challenges Today
Jain observed that participation in the foreign exchange market remains skewed. Public Sector Banks, which maintain deep relationships with MSMEs and smaller corporates outside metropolitan areas, participate less in forex derivatives relative to their balance sheet size.
At the same time, the client base is dominated by large corporations, while smaller clients — who stand to benefit the most from currency risk hedging — remain on the sidelines.
The Deputy Governor stated that expanding the market-maker base, increasing Public Sector Bank participation, and promoting electronic platforms are essential priorities to pursue.
Jain noted that in late March and early April of this year, an accumulation of unhealthy arbitrage positions linking the onshore deliverable and offshore non-deliverable forward (NDF) markets prompted calibrated measures on net open positions, non-deliverable derivative offerings to customers, and related-party transactions.
Inconsistency Risk
“Some of these measures have since been reversed. As the market further integrates with global liquidity, the lesson is not to fear integration but to strengthen risk management, governance, and oversight arrangements,” he said.
The Deputy Governor observed that a strictly principles-based regulatory approach carries its own risk of inconsistency.
“Detailed rules create rigidity; principles can lead to interpretational divergence. The solution lies not in reverting to prescription, but in fostering stronger institutional judgment, establishing clearer published customer standards, and sharing interpretive experiences through FEDAI,” he said.
Jain urged FEDAI to take the lead in implementing principles-based regulation by setting common standards among its members.
