NEW DELHI: Indian banks incurred approximately USD 500 million in mark-to-market losses on their foreign exchange (FX) trading portfolios during the first half of 2026 after regulatory changes by the Reserve Bank of India (RBI) compelled lenders to close out positions, according to research by Crisil Coalition Greenwich.
The research indicated that banks later recovered about USD 400 million of the losses as market spreads widened and positions returned to normal.
The losses followed an RBI directive issued on March 27, limiting authorised dealer banks’ end-of-day net open positions in onshore rupees to $100 million. By April 10, banks were required to close their positions, resulting in a significant shift in their trading portfolios.
The move came at a time when the rupee was facing heightened volatility, foreign investors were withdrawing capital and strong corporate demand for currency hedging was putting additional pressure on banks’ FX position management.
“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, Crisil Coalition Greenwich.
The stricter constraints also reduced banks’ ability to manage FX risk and provide liquidity, while limits on related-party derivatives restricted some banks’ ability to hedge exposures, the report noted.
The subsequent widening of market spreads helped banks recover some of the initial losses as dealers began factoring in reduced balance-sheet capacity and higher execution risks.
On April 20, the RBI rescinded several of its earlier directives and allowed certain exceptions for related-party transactions, easing some of the operational strain on banks.
“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, Crisil Coalition Greenwich.
The study also pointed to rising crude oil prices as a significant factor contributing to FX volatility, given India’s reliance on imported energy.
India imports about 85 per cent of its crude oil and 50 per cent of its natural gas, it stated. According to the research, India’s import expenditure increased by 20 per cent from January to July 2026, with total imports reaching USD 95.9 billion, the highest level since 2011.
