Indian companies' $7 billion NDF hoard shows firms seized rupee arbitrage window

Indian companies' activity in the non-deliverable forwards (NDF) market surged to over $7 billion on March 30, around seven times the average, signaling a rush to capture arbitrage opportunities created by banks unwinding positions following regulatory curbs.

The unwinding followed the Reserve Bank ‌of India's ⁠imposition of ⁠restrictions on lenders' net onshore open FX positions, prompting a rush to lower positions aimed at benefitting from gaps between onshore and non-deliverable forwards.

With banks selling dollars in the domestic market and simultaneously buying them in NDF to close the trades, the spread between the two widened, creating arbitrage opportunities that ⁠corporates exploited ‌by buying dollars onshore and selling in NDF. Clearing house data bears out how this fueled a surge ⁠in NDF activity.


Client trading volumes in the NDF market jumped manifold to $7.54 billion on March 30, Clearing Corp of India data showed.

Dollar selling dominated, with $7.51 billion of corporate dollar sales, while buying was a mere $24 million.

The data indicates why the central bank's curbs on size of banks' onshore FX positions, announced on March 27, were not ‌able to meaningfully lift the rupee.

On March 30, the currency initially ticked up but fell to an all-time low past 95 per ⁠U.S. dollar eventually due to onshore corporate dollar demand.

Since then, India's central bank has intensified its regulatory crackdown and barred local lenders from offering clients NDF while disallowing companies from rebooking canceled forward contracts.

The series of measures by RBI, especially the curbs on corporate activity, has helped boost the rupee with the currency trading around 93 per U.S. dollar.