Reserve Bank of India slightly relaxes FX curbs for banks with big open positions

MUMBAI: The Reserve Bank of India has marginally relaxed limits on net open foreign exchange positions for many banks that had large open positions before the central bank imposed restrictions in December, two banks confirmed to Reuters on Monday.

The sharp fall in the rupee against the dollar last year prompted the RBI to impose restrictions on speculative trading by reducing the net overnight open position limit of banks.

But banks that had large net open positions have been finding it difficult to meet requirements on proprietary trades within the narrow limit set by the RBI, dealers said.

"Most banks had approached RBI over the last two weeks to relax the limit a bit as they we were already having high net open positions which were difficult to manage within such a narrow band," said a dealer at a foreign bank that was granted a relaxed limit.

The nominal change is designed to accommodate technical fluctuations and will not have an impact on the rupee or encourage speculative trading, dealers said.

"The banks with large books were not able to manage their net open position limits and the new levels given were getting breached," said another dealer at a private bank.

"So banks represented with RBI asking for the bare minimum levels required depending on their book sizes and exposure in other markets and the minimum has been granted to banks."

The rupee, which touched an all-time low of 54.30 to the dollar in December, has since recovered and touched a 3-month high of 48.61 in early trade on Monday.

The rupee rose 7.45 percent gain in January after dropping 16 percent in 2011, when it was Asia's worst performing currency.

The Economic Times newspaper first reported that the RBI had slightly relaxed the limit on net open positions.