Indian banks need to grow global forex game: RBI governor Sanjay Malhotra

Reserve Bank of India Governor Sanjay Malhotra said Indian banks must step up their role in global currency markets if India is to bring offshore rupee trading back onshore, highlighting structural gaps in the handling of rupee derivatives.

"Indian banks are dealing only with offshore market-makers rather than with end-users. If the global INR market has to be on-shored, Indian banks will need to evolve as market-makers globally," Malhotra said while speaking at the 25th annual conference of the Fixed Income Money Market and Derivatives Association (FIMMDA) and the Primary Dealers' Association of India in Amsterdam.

The RBI's push to onshore the global rupee market comes weeks after it moved to curb currency volatility by tightening banks' net open positions in the onshore foreign exchange market. On March 30, the central bank directed banks to cap their net open rupee positions at $100 million at the end of each business day, triggering the unwinding of long-dollar positions and a brief rebound in the rupee from record lows. It was aimed at limiting speculative arbitrage between the onshore market and offshore non-deliverable forwards, which dealers said had amplified the currency's fall.


Malhotra said banks and primary dealers must ensure fair and transparent treatment of all users. "While privilege bestows some benefits, it also entails responsibilities," he said, urging market-makers to protect market integrity while meeting regulatory objectives.

While India's government securities market was liquid by most standards, further reforms were needed, Malhotra said. "There is scope to improve liquidity across all tenors and securities," he said, adding that the development of credit derivatives was "a largely underutilised area". He said global uncertainty was posing challenges to the real economy and financial systems worldwide. "Geo-economic fragmentation caused by tariffs, trade restrictions, and industrial policies are reshaping global supply chains and affecting the free movement of capital," he said.