Indian banks have approached the Reserve Bank of India seeking changes to the central bank's latest measures aimed at defending the rupee, pressing for a more flexible structure that they say would reduce strain on liquidity and improve clarity for corporate hedgers, according to a report.
The lenders are understood to have asked the RBI to replace the 20% cash deposit requirement for current-account hedging with a flat charge. Bankers argue that a fee-based model would be easier for companies to understand, would avoid locking up working capital, and would still allow the regulator to discourage speculative positions in the foreign exchange market.
Liquidity Versus Discipline
The request goes to the heart of a longstanding policy trade-off in India's currency management framework: how to support the rupee without making hedging prohibitively expensive or operationally cumbersome for businesses. A deposit requirement can act as a deterrent and provide a buffer, but it also ties up cash that companies might otherwise use for payroll, inventory, imports or debt service. For firms already operating on thin margins, especially importers and borrowers with foreign-currency exposure, the difference between a refundable deposit and a transparent fee can materially affect hedging decisions.
Banks, which sit between the RBI's policy intent and corporate treasury operations, have reportedly argued that a flat charge would make the cost of hedging more predictable and easier to account for. That, in turn, could encourage more disciplined use of hedging instruments rather than ad hoc or partial coverage driven by cash constraints. Market participants have long noted that opaque or variable collateral requirements can discourage smaller firms from hedging at all, leaving them more exposed to currency volatility.
The RBI's latest rupee-defence measures were designed to curb pressure on the currency and reduce the risk of destabilising flows. But the banking industry appears to be signalling that the implementation details may need refinement if the policy is to work smoothly in the real economy. The central bank has not publicly responded to the reported requests.
Thresholds Under Scrutiny
Lenders have also raised concerns about the $2 million threshold embedded in the framework, saying it complicates hedge tracking and compliance. In practice, threshold-based rules can create administrative friction, particularly for banks managing large volumes of contracts across multiple clients, tenors and currencies. If the threshold is not clearly aligned with reporting systems and transaction monitoring, it can increase the risk of misclassification and make it harder for institutions to ensure consistent treatment across accounts.
The reported concerns suggest that banks are seeking not only relief from the cash deposit mandate but also greater operational clarity. For the RBI, that matters because a rule that is difficult to administer can produce uneven market behaviour, with some participants adapting quickly while others delay hedging or shift activity into less transparent channels.
A further area of uncertainty is whether the deposit requirement applies to hedges linked to interest payments on foreign loans. That issue is especially relevant for Indian companies with external commercial borrowings, where interest obligations can create recurring foreign-exchange exposure. If the rule is interpreted too broadly, borrowers may face additional costs on routine risk management rather than on speculative or discretionary positions. If interpreted too narrowly, the policy may fail to cover exposures the RBI intended to regulate.
Policy Clarity Needed
The banks' intervention underscores a broader challenge for policymakers: rupee management now operates in an environment where capital flows, import bills, external borrowing and corporate hedging are tightly interconnected. Measures aimed at stabilising the currency can quickly spill over into credit conditions and business cash flow. That makes clarity on scope, exemptions and implementation as important as the headline policy itself.
For businesses, the key question is not only whether the rupee is defended, but how much that defence costs in liquidity terms. For banks, the concern is whether the current framework can be administered efficiently without creating avoidable friction in the hedging market. And for the RBI, the task is to preserve currency stability while ensuring that legitimate risk management remains practical for companies of all sizes.
The reported discussions indicate that the banking industry is pushing for a recalibration rather than a rejection of the RBI's approach. Whether the central bank accepts any of the proposed changes will be closely watched by corporates, importers and borrowers with foreign-currency exposure, all of whom are sensitive to both exchange-rate volatility and the cost of protection.