RBI Releases Draft Directions on Foreign Exchange Dealings & Announces Major Regulatory Reforms

The Reserve Bank of India (RBI) has released the Draft Directions on Foreign Exchange Dealings of Authorised Persons and invited public comments until March 10, 2026.

The draft directions aim to provide greater flexibility to Authorised Dealers (ADs) in foreign exchange products, risk management, and trading platforms. This move follows the announcement made in the Statement on Developmental and Regulatory Policies dated February 06, 2026.

Stakeholders can submit feedback via email or send written comments to the RBI’s Financial Markets Regulation Department at its Mumbai headquarters.

What Are the Draft Directions on Foreign Exchange Dealings?

Under the Foreign Exchange Management Act (FEMA), 1999, banks and standalone primary dealers act as Authorised Dealers (ADs).

The revised draft framework aims to:

• Rationalise existing foreign exchange regulations
• Align rules with global market practices
• Provide greater operational flexibility
• Enhance risk management capabilities
• Strengthen market efficiency

The consultation reflects RBI’s approach of regulatory refinement based on evolving market needs.

Key Highlights from RBI’s Developmental and Regulatory Policies

The February 2026 policy statement outlines reforms across five major areas:

I. Regulations

1. Advertising & Marketing of Financial Products

RBI will issue comprehensive instructions to prevent mis-selling of financial products by Regulated Entities (REs). The draft guidelines will ensure products are suitable for customer risk profiles.

2. Recovery Agents & Loan Recovery Conduct

Existing guidelines applicable to different REs will be reviewed and harmonised to ensure uniform conduct standards in loan recovery practices.

3. Customer Liability in Digital Transactions

The 2017 framework on limiting customer liability in unauthorised digital transactions is under review.

Proposed changes include:

• Updated zero/limited liability timelines
• Compensation framework for small-value fraud cases

4. Bank Lending to REITs

Commercial banks may soon be permitted to lend to Real Estate Investment Trusts (REITs), subject to prudential safeguards. Guidelines will be aligned with those applicable to Infrastructure Investment Trusts (InvITs).

5. Lending Norms for Urban Cooperative Banks (UCBs)

RBI plans to rationalise:

• Unsecured loan limits
• Lending to nominal members
• Housing loan tenor and moratorium norms

A tiered and simplified approach is proposed.

6. Exemption for Type-I NBFCs

NBFCs not availing public funds and without customer interface (asset size ≤ ₹1,000 crore) may be exempted from RBI registration, reducing compliance burden.

7. NBFC Branch Authorisation Changes

NBFC-Investment and Credit Companies (ICCs) engaged in gold loans may no longer require prior RBI approval for opening new branches.

II. Payments System

8. Discussion Paper on Digital Payment Safeguards

RBI will issue a discussion paper proposing safeguards such as:

• Lagged credits
• Additional authentication for senior citizens

The aim is to curb rising digital payment frauds while promoting safe digital adoption.

III. Financial Inclusion

9. Lead Bank Scheme Revision

Comprehensive guidelines will streamline operations under the Lead Bank Scheme (LBS). RBI will also launch a unified reporting portal.

10. Kisan Credit Card (KCC) Guidelines

Proposed changes include:

• Extension of tenure to six years
• Alignment with Scale of Finance
• Inclusion of technology-related expenses

11. Review of Business Correspondent (BC) Guidelines

Guidelines will be amended to enhance efficiency of BCs in rural and remote areas.

12. Collateral-Free Loan Limit Increased

Collateral-free loans to Micro and Small Enterprises (MSEs) will increase from ₹10 lakh to ₹20 lakh, effective April 01, 2026.

IV. Financial Markets

13. Corporate Bond Market Development

RBI will introduce:

• Total Return Swaps on corporate bonds
• Derivatives on corporate bond indices

This follows the Union Budget 2026 announcement.

14. Foreign Exchange Dealings of Authorised Dealers

The revised framework provides:

• Greater flexibility in FX products
• Improved hedging facilities
• Alignment with global best practices

Draft directions are now open for public consultation.

15. Voluntary Retention Route (VRR) for FPIs

Changes include:

• VRR investments counted under General Route limits
• Additional operational flexibility for Foreign Portfolio Investors

V. Capacity Building

16. Mission SAKSHAM for UCB Sector

RBI will launch Mission SAKSHAM (Sahakari Bank Kshamta Nirman), a sector-wide certification and capacity-building initiative for Urban Cooperative Banks.

• Target coverage: 1.40 lakh participants
• Regional language training
• Collaboration with sector federations

Why This Matters

The draft directions and regulatory measures indicate RBI’s focus on:

• Strengthening financial market resilience
• Enhancing customer protection
• Promoting digital payment safety
• Supporting financial inclusion
• Reducing compliance burden for low-risk NBFCs

The consultation-based approach reflects regulatory transparency and stakeholder engagement.