Foreign banks are reclassifying arbitrage deals affected by the Reserve Bank of India's clampdown on rupee speculation as hedges for capital inflows from their overseas parents. The strategy seeks to avoid the regulator's $100 million net open position limit. RBI officials may examine these changes based on timelines and documentation.
Foreign banks in India have begun reclassifying certain USD-INR forward contracts and arbitrage positions in response to the RBI's recent restrictions on rupee bets. These deals, previously treated as speculative arbitrage, are now being labeled as hedges linked to capital transfers from parent companies abroad. The RBI imposed a $100 million net open position limit to curb excessive speculation in the non-deliverable forwards market and onshore forwards. The reclassification aims to comply with the new rules while maintaining exposure. However, the central bank plans to scrutinize such moves, checking documentation and transaction timelines for legitimacy. No specific banks were named in the reports, but the practice involves global institutions active in India's currency markets.
