India cenbank asks some banks to not take fresh NDF arbitrage bets - sources

By Nimesh Vora and Siddhi Nayak

MUMBAI (Reuters) -The Reserve Bank of India (RBI) has asked some banks to stop taking fresh arbitrage positions in the non-deliverable forwards market, six bankers told Reuters.

"The RBI has told us not to take new outright arbitrage positions," a senior trader at a private sector bank said.

"Swap arbitrage positions are still allowed."

The central bank has verbally communicated the directions and there has been no written communication, two bankers said.

While the RBI spoke to these three banks directly, three other bankers said they were aware of such a development.

The sources spoke on condition of anonymity as they are not authorised to speak to the media. The RBI did not immediately respond to a Reuters' email seeking comment.

"It looks like the RBI has identified select banks to minimise the impact of any volatility in the NDF market," a treasury official at a private bank said.

The central bank has, in the past, placed similar restrictions to manage the rupee's volatility.

For instance, when the rupee hit a record low of 83.29 in October 2022, the RBI had informally asked local banks to not build additional positions in the NDF market.

The restrictions were lifted in December once the volatility ebbed.

The rupee reached 83.16 last week and only the RBI's intervention in both the NDF and onshore markets prevented a slide to the record low, traders said.

The rupee ended at 82.6850 on Wednesday, having appreciated sharply from a low of 83.0050 earlier in the session.

(Reporting by Nimesh Vora and Siddhi Nayak; Additional reporting by Sethuraman NR in Bengaluru and Jaspreet Kalra in Mumbai; Editing by Savio D'Souza)