India to Allow Domestic Access to NDF Market

The Reserve Bank of India has announced plans to allow certain banks in the country to offer access to INR non-deliverable forward markets in a move seen as an effort to reduce arbitrage opportunities and provide more stability to the rupee.

The RBI proposal will allow banks operating in the International Financial Services Centre (IFSC), who are currently allowed to trade INR NDFs with each other and non-residents, to expand their offering to Indian residents.

“With a view to develop the onshore INR NDDC [ non-deliverable derivative contract] and to provide residents with the flexibility to efficiently design their hedging programmes, it has been decided to permit banks with IBUs to offer INR NDDCs to resident users in the onshore market,” the central bank says in a statement. “These banks will have the flexibility of settling their NDDC transactions with non-residents and with each other in foreign currency or in INR while transactions with residents will be mandatorily settled in INR.”

RBI governor Shaktikanta Das, adds, “This measure will further deepen the forex market in India and provide enhanced flexibility to residents in meeting their hedging requirements.”