Indian banks faced nearly $500 million in mark-to-market losses on their foreign exchange trading books during the first half of 2026, driven by sudden regulatory changes that forced lenders to rapidly unwind existing positions. Crisil Coalition Greenwich detailed the figures, noting that authorized dealer banks subsequently recovered around $400 million of those initial losses as market spreads widened and trading positions normalized.
The March Directive and the $100 Million Limit
The financial turbulence traces back to a March 27 directive issued by the Reserve Bank of India. The policy capped authorised dealer banks’ end-of-day onshore rupee net open positions at $100 million. Regulators gave institutions a strict deadline of April 10 to fully unwind their positions, triggering an abrupt and aggressive adjustment across institutional trading desks.
The timing compounded the operational pressure. The mandate arrived while the rupee was experiencing notable volatility, foreign investors were pulling funds out of the country, and corporate demand for currency hedging sat at elevated levels. These simultaneous pressures severely strained the ability of banks to manage their foreign exchange books effectively.
“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,” said Nitin Agicha, vice-president, Market Structure & Technology at Crisil Coalition Greenwich.
Liquidity Constraints and Regulatory Adjustments
The tighter regulatory limits diminished the capacity of banks to warehouse foreign exchange risk and supply broader market liquidity. Furthermore, existing restrictions on related-party derivatives hindered certain banks from successfully offsetting their exposures during the crunch.
As dealers began pricing in tighter balance-sheet capacities and heightened execution risks, market spreads widened. This shift allowed banks to claw back roughly $400 million of the initial $500 million deficit. Acknowledging the friction, the central bank withdrew some of its earlier instructions on April 20, carving out limited exceptions for related-party transactions to ease operational bottlenecks.
“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,” said Aamir Hazaria, director, Corporate & Investment Bank Competitor Research & Analytics at Crisil Coalition Greenwich.
Crude Oil Pressures and the Road Ahead
Beyond regulatory shifts, the research highlighted rising crude oil prices as a primary catalyst for ongoing foreign exchange volatility. India remains structurally dependent on imported energy, purchasing roughly 85 per cent of its crude oil and 50 per cent of its natural gas from international markets.
Driven largely by these energy imports, India’s import bill expanded by 20 per cent between January and July 2026, pushing total imports to $95.9 billion—the highest level since 2011.
“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,” Hazaria noted.
