Indian Banks' Forex Trading Losses Hit $500 Million After RBI Position Cap

Indian banks incurred nearly $500 million in foreign exchange trading losses during the first half of 2026 following a Reserve Bank of India directive that forced them to reduce currency positions, according to a Crisil Coalition Greenwich report. Lenders subsequently recovered around $400 million as trading conditions adjusted and positions returned to normal.

The RBI's March 27 directive limited authorised dealer banks' end-of-day net open rupee positions to $100 million, with a April 10 deadline for compliance. The short implementation window required banks to quickly close or rebalance trades during volatile market conditions marked by sharp rupee movements and foreign investor withdrawals, increasing pressure on their forex books.

Banks recovered much of their losses after bid-ask spreads widened in the forex market. Dealers adjusted prices to reflect reduced trading capacity and greater risks, helping offset earlier losses as conditions normalised.