Reserve Bank of India Introduces Special Dollar Window for Public Sector OMCs to Curb Rupee Depreciation

The Reserve Bank of India (RBI) has established a special dollar window for three public sector oil marketing companies (OMCs) and implemented stricter foreign exchange regulations to address the depreciating rupee and maintain market stability.

Photograph: Francis Mascarenhas/Reuters

Key Points

• The RBI has created a dedicated dollar window for Indian Oil Corporation Ltd, Hindustan Petroleum Corporation Ltd, and Bharat Petroleum Corporation Ltd to meet their daily foreign exchange requirements.
• This initiative is designed to counter the continuous depreciation of the Indian rupee, which was last traded at 96.71 against the US dollar.
• US dollars will be sold directly to these OMCs via designated banks, with the facility commencing on October 12, 2026, and remaining in effect indefinitely.
• Additional forex regulations include a ban on rebooking cancelled INR derivative contracts and a reduction in the threshold for derivative transactions without underlying exposure from $100 million to $5 million.
• A Foreign Exchange Risk Reserve (FERR) will be enforced, mandating authorised dealers to hold 20% of the notional value in cash for INR derivative contracts surpassing $2 million, applicable to hedging current account exposures involving foreign currency purchases against INR.

On Saturday, the Reserve Bank announced a special facility to fulfill the complete daily dollar needs of three public sector oil marketing companies (OMCs).

The central bank simultaneously introduced regulatory measures aimed at enhancing market discipline and risk management in the foreign exchange market, ensuring an orderly and transparent environment.

Addressing Rupee Depreciation

This action follows ongoing rupee depreciation driven by persistent geopolitical and global economic uncertainties. The local currency concluded at 96.71 against the US dollar on Friday.

The special window applies to Indian Oil Corporation Ltd, Hindustan Petroleum Corporation Ltd, and Bharat Petroleum Corporation Ltd.

“Based on an assessment of current market conditions, the RBI has decided to establish a special window to cover the entire daily dollar requirements of the three public sector OMCs,” it said.

Under this facility, the RBI will sell US dollars to the public sector OMCs through designated banks.

The facility becomes effective from October 12, 2026, and will remain active until further notice.

New Forex Market Regulations

As part of the regulatory measures, the RBI stated that authorised dealers must not allow users to rebook any cancelled INR derivative contracts, whether deliverable or non-deliverable.

Rollover of foreign exchange derivative contracts upon maturity will continue to be allowed, subject to existing regulatory compliance.

Additionally, the threshold for engaging in foreign exchange derivative transactions without underlying exposure has been lowered.

“The previous threshold of $100 million for derivative transactions to hedge contracted exposures without verifying underlying exposure has been reduced to $5 million across all authorised dealers,” the RBI said.

Similarly, the threshold for positions in exchange-traded INR derivatives without underlying exposure has been cut from $100 million to $5 million across all recognised stock exchanges.

Introducing Foreign Exchange Risk Reserve

The RBI also introduced the Foreign Exchange Risk Reserve (FERR).

For all INR derivative contracts with a notional value exceeding $2 million, authorised dealers must maintain an FERR in cash with the RBI, equivalent to 20% of the INR value of each transaction.

This FERR applies to INR derivative contracts used for hedging current account exposures where foreign currency is purchased against INR, it said.

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