According to a study by Crisil Coalition Greenwich, Indian banks faced market valuation losses of nearly $500 million on their foreign exchange trading books in the first half of 2026. These losses occurred after regulatory changes introduced by the Reserve Bank of India (RBI) forced creditors to close their positions.
The study indicated that subsequently, banks were able to recover about $400 million of these losses through the expansion of market spreads and the normalization of positions.
These losses followed an RBI directive from March 27, which imposed a limit on net open rupee positions within the country for authorized dealer banks at the end of the day—this limit was set at $100 million. Banks were required to close their positions by April 10, leading to a sharp adjustment in trading books.
This move took place during a period of rupee volatility, outflow of foreign investment, and high corporate demand for hedging currency risks, which further pressured the banks' ability to manage currency positions.
Nitin Agicha, Vice President of Market Structure and Technology at Crisil Coalition Greenwich, noted: 'The short window for implementing new RBI rules forced banks to quickly close or rebalance positions amid heightened rupee volatility, foreign investor outflows, and strong corporate hedging demand.'
Furthermore, stricter limits reduced the banks' capacity to hold currency risks and provide liquidity, while restrictions on related-party derivatives narrowed some banks' options for compensating risk exposure, as stated in the report.
The subsequent expansion of market spreads helped banks offset part of the initial losses, as dealers began accounting for more limited balance sheet capacity and higher execution risks.
On April 20, the RBI withdrew some of its previous directives and allowed limited exceptions for related-party transactions, which eased some operational pressure on the banks.
Amir Khazaria, Director of Competitive Research at Crisil Coalition Greenwich's Corporate and Investment Banking division, stated: 'The losses in the first half of the year in the foreign exchange market were not simply a result of weakening client activity, but a short-term fluctuation in trading due to RBI directives.'
The study also identified rising crude oil prices as a key source of currency volatility, given India's dependence on energy imports. It was noted that India imports about 85 percent of its crude oil and 50 percent of natural gas.
According to the study, India's import bill rose by 20 percent between January and July 2026, with total imports reaching $95.9 billion, the highest level since 2011.
Khazaria concluded: 'While RBI interventions and tighter controls helped curb excessive volatility, the future resilience of the rupee 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.'
