RBI issues Frequently Asked Questions on Foreign Exchange Risk Reserve

(DIR Series) Circulars No. 26 and No. 27. For compliance teams at banks and financial institutions, this means the RBI is providing additional interpretive guidance on how to calculate, maintain, and report FERR. While the FAQs do not introduce new requirements, they signal heightened supervisory attention to FX risk and reserve adequacy.

Firms should immediately review the FAQs alongside the original circulars to ensure their FX risk management frameworks, capital planning, and reporting processes align with RBI expectations. Key actions include: mapping FERR obligations to existing treasury and risk controls; updating internal policies and staff training; validating data and systems for accurate reserve computation; and assessing any impact on liquidity, profitability, and cross-border operations. Larger banks and authorized dealers face the most direct operational changes, but all entities with material FX exposures should evaluate indirect effects.

The clarifications reduce regulatory uncertainty, creating an opportunity for well-prepared firms to strengthen risk controls and demonstrate compliance. However, non-compliance could attract penalties and reputational damage. Given the recent issuance, firms should prioritise a gap analysis and engage with RBI guidance promptly.

RegCanary recommends treating this as a significant but manageable compliance update, with medium urgency until specific deadlines emerge.