Top News

In order to strengthen the rupee, the Reserve Bank of India made several changes in the NFD on March 27, which Indian companies took advantage of. On March 30, the activity of Indian companies in the Non-Deliverable Forwards (NDF) market increased to more than $7 billion, they made a lot of investments. Which was almost seven times more than the average. This is an indication that after the tightening of rules, there was a competition on the part of banks to take advantage of arbitrage profits arising from reducing their positions.

This process of reducing positions started after the Reserve Bank of India (RBI) imposed limits on the net onshore open FX positions of banks. This led to a rush to reduce positions in order to take advantage of the difference between onshore and non-deliverable forwards. Banks sold dollars in the domestic market and also bought dollars in NDF to close trades. This widened the gap between the two, creating profit opportunities that companies took advantage of by buying dollars onshore and selling them in NDF. Clearing House data confirms how this led to a surge in NDF activity.

Client trading volume increased

According to data from Clearing Corp of India, client trading volume in the NDF market increased manifold to $7.54 billion on March 30. Dollar sales dominated. Companies sold dollars worth $7.51 billion, while buying was only $24 million. This data gives an indication of why the limits imposed by the Central Bank on the size of banks' onshore FX positions on March 27 did not succeed in strengthening the rupee. On March 30, the rupee initially appreciated slightly, but due to demand for onshore corporate dollars, it fell to its lowest ever level, where the price of one US dollar reached more than 95 rupees.

The Central Bank of India has increased the strictness of its rules. It has barred local banks from offering NDFs to customers, and has also not allowed companies to rebook canceled forward contracts. Due to these steps taken by the RBI, especially due to the limitations imposed on corporate activity, the rupee has strengthened and is now trading at around Rs 93 per US dollar.