India’s Foreign Exchange Markets: Getting ready for the next Decade¹ - Keynote Address delivered by Shri Rohit Jain, Deputy Governor on the Annual Day of the Foreign Exchange Dealers' Association of India (FEDAI) on August 14, 2026 -

Shri Srinivasa Panigrahi, Chairman, FEDAI; Shri Shamsher Singh, Deputy Managing Director, SBI, Shri Vivek Wahi, Chief Executive, FEDAI; distinguished members of the banking and financial community; ladies and gentlemen. Good evening.

1. Thank you for inviting me to FEDAI's Annual Day. My congratulations to FEDAI on this occasion. FEDAI was set up way back in 1958, when India's foreign exchange market was, in substance, an administrative arrangement around a rationed resource. It was once all about how to conserve foreign exchange; now it is more about how well we serve those who use it.

2. The topic of my talk is India's Foreign Exchange Markets: Getting ready for the next Decade. By their very nature, markets are continuously evolving and parameters of their readiness are being regularly renewed according to the needs of the time. Our market would be ready for the next decade if it can help facilitate India's ever increasing engagement with other countries, absorb shocks in a non-disruptive manner, serve the smallest user as efficiently as the biggest, and embrace new technology without vitiating the trust it has earned. On some of these parameters we have done well, on others we have to do better.

From FERA to FEMA

3. The decisive turning point in the journey of our forex market was the enactment of Foreign Exchange Management Act, which came into force from June 1, 2000. A change of single word in the title – 'management' in place of 'regulation' - symbolised the paradigm shift from conserving a scarce resource through control, to facilitating external trade and payments and the orderly development of the market. Forex contraventions ceased to be criminal offence and became compoundable civil matters.

4. Our foreign exchange reserves have risen from about US$ 38 billion in 2000 to US$ 691 billion in 2026. The average daily turnover in the domestic forex market, spot and derivatives combined, has doubled from USD 41 billion in FY22 to about USD 80 billion at present. The notional outstanding in rupee derivatives has grown nearly fourfold since FY21 to about ₹130 lakh crore. The latest BIS Triennial Survey has estimated daily INR turnover, onshore and offshore combined, at USD 185 billion in 2025 against USD 119 billion in 2022. The interbank segment, roughly 70 per cent of the onshore volume, has grown faster than the client segment, reflecting deeper bank participation in price discovery. CCIL trade repository registrations for forex derivatives have doubled from about 43,000 in 2019 to 87,000 in 2025.

5. These figures reflect wider non-resident participation, rising trade volumes, LRS flows and remittances, and progressive regulatory frameworks that have been implemented in respect of foreign direct investment, portfolio investment, external commercial borrowings, and overseas investment. Offshore activity has grown in parallel - NDF turnover is now about USD 7 billion a day - while the onshore-offshore spread has narrowed as integration has deepened.

6. Currency risk management has travelled the same road, from product-by-product permissions to a user-oriented framework covering forwards, swaps, options, and exchange-traded and non-deliverable derivatives, with transactions permitted beyond onshore hours. The principle is simple - genuine economic activity should have access to effective risk-management tools, while leveraged speculation and opaque conduct must remain contained.

7. The twenty-six years since 2000 can be described in three phrases- from control to facilitation; from detailed permissions to stated principles; and from regulatory approvals to delegated decision-making by Authorised Dealers.

8. In my view, four drivers will shape our forex markets in the coming decade. Let me elaborate on these.

Four Drivers of the Next Decade

9. The first is Delegation, and the quality of decisions taken by Authorised Dealers. A modern foreign exchange system cannot work efficiently if routine commercial decisions keep travelling back to the regulator. Our objective is fewer prior approvals, a simpler rulebook, risk-based reporting and greater reliance on board-approved policies of authorised dealers.

10. It places an obligation on all of you. Delegation is meant to reduce the burden on the customer, not to move it from the Reserve Bank's approval process to an AD's internal checklist. Where a requirement has been relaxed and the branch still asks for the same documents 'to be safe', the reform has not happened. The question is not how many documents you have collected, but whether you understand the transaction and its risks well enough to defend your decision. Principle-based regulation works only if similar cases receive similar treatment across branches of the same bank and across institutions. This calls for clear internal policies inside AD banks, staff suitably trained and empowered to implement them and healthy audit processes that serve as an effective line of defence.

11. The second driver is Customer-centric business processes. Nowhere is the gap between regulatory intent and market outcome wider than in retail forex pricing. FX-Retail facility has provided individuals and MSMEs direct access to competitive interbank pricing since 2019, yet its usage has stayed modest for years, held back not by any shortcomings in the platform's design but by uneven bank onboarding and low customer awareness, a gap this forum has heard flagged repeatedly. The Bharat Connect pilot, launched in October 2025, lets customers transact through the banks and apps they already use, rather than as a standalone portal. It began with a few banks and Third Party App Providers (TPAPs) covering dollar purchases for remittances, forex card loading and currency delivery, and will expand to more banks, currency pairs and user categories. This is the right template. Instead of expecting customers to change their behaviour to get a fair price, we should strive to bring the fair price into the channel they already use. I would urge AD banks to treat onboarding as a service standard this year, not as a compliance checkbox visited only when the Reserve Bank asks.

12. A customer does not experience FEMA as an Act or a Master Direction, but through his lived experience with the AD bank in terms of the documents a branch asks for, the quoted price, the time taken, and the quality of the explanation when a transaction cannot be done. As part of our supervisory exercise, we have found multiple documentation requirements and cases of delay in executing cross-border remittances. Accordingly, we have advised AD banks through FEDAI to put in place a clear policy governing documentation, process and approving authority, charges, timelines, escalation, and grievance redress to be displayed on their websites and at branches offering cross-border services. The progress on this needs to be better.

13. A review of member websites done recently revealed certain gaps in banks’ policies governing customer transactions; references to schedule of charges or grievance policy 'available on the bank's website' without any link; outward remittance documentation described in too general a manner to be of any practical use. These are not difficult problems. They get fixed when officials of the AD themselves go through what the customer experiences and make the necessary improvements.

14. Similarly, transparency is not a one-time disclosure exercise. Policies must be complete, current, intelligible and actually followed at the bank's counter; compliance tested through internal or concurrent audit; staff trained, with proper succession planning so that capability does not sit with one officer; and customer feedback taken regularly and examined by people with requisite authority to change the process. No customer should suffer for a delay that arises from internal processing at the AD end.

15. The third driver is Cross-border trade in local currencies. Local currencies will play an ever increasing role in cross-border trade and payments. The Special Rupee Vostro Account (SRVA) framework for invoicing, payment and settlement of international trade in rupees has been implemented keeping in view the evolving dynamics of our international trade. Its success will depend on commercial viability, emphasis on trade settlement in local currencies, offering market-determined rates, and strengthening confidence in the settlement ecosystem. Opening a SRVA account is the easy part. The harder task is identifying corridors with genuine two-way flows, building reliable correspondent relationships, quoting competitive conversion and hedging solutions, explaining the mechanics to first-time users, and finding avenues for the productive deployment of rupee balances - all resting on robust internal processes, AML/CFT controls, operational resilience and, above all, a willingness to facilitate these transactions.

16. I would encourage you not to see it only as a way of reducing reliance on international currencies. The settlement of cross border transactions in local currencies results in lower transaction costs, fewer currency mismatches, better settlement efficiency, and the ability to trade where correspondent banking is costly or constrained. Policy can create the option. It is the Authorised Dealers who will determine whether this happens. I am confident that our banks can, and will rise to the occasion.

17. The fourth driver is Leveraging Technology across the customer chain. The foreign exchange transactions of next decade should be digital from origination to reporting – all required data captured only once with consent, documents verified electronically, regulatory data drawn from trusted sources, rules applied consistently, status visible to the customer, and reporting produced as a by-product of processing, rather than as a separate month-end exercise.

18. Digitalisation has already reshaped execution. A large share of forex spot transactions are now executed through electronic trading platforms (ETPs), supported by CCIL infrastructure and an ETP framework in place since 2018. All onshore rupee spot and derivative trades, interbank and client, are mandatorily reported, alongside offshore trades involving Indian banks, gold derivatives and related-party trades of standalone primary dealers, giving us a far more complete picture of positions than existed previously. CCIL's guaranteed settlement of forwards now extends to 36 months, and we have seen introduction of a trading platform and central clearing for forex options. Yet forwards and swaps remain almost entirely voice traded. This gap is expected to narrow as API-driven strategies make voice execution expensive for anything beyond the bespoke or odd-lot trade. Voice-negotiated dealing will still matter for complex or thin-liquidity trades, but for standardised products the direction is unambiguous, and ADs which adopt digital workflow early will set market convention, rather than follow it.

19. Artificial intelligence and machine learning can genuinely assist in document classification, anomaly detection and the identification of reporting inconsistencies. Accountability, however, cannot be automated. Models must be explainable, outcomes reviewable and cross-border data protected. Little is gained by replacing an opaque manual decision with an opaque automated one, except speed - and speed in the wrong direction is not an improvement.

Challenges We Face Today

20. At the same time, our market faces certain challenges in realising its full potential. First, participation remains skewed. Public Sector Banks, which hold deep relationships with MSMEs and smaller corporates outside the metros, under-participate in forex derivatives relative to their balance sheet size. At the same time, the client segment is dominated by large corporates while the smaller clients who stand to gain most from currency risk hedging remain on the sidelines. Expanding the market-maker base, raising Public Sector Bank participation, and encouraging electronic platforms are necessary priorities to be pursued.

21. Second, in late March and early April this year, a build-up of unhealthy arbitrage positions linking the onshore deliverable and offshore NDF markets prompted calibrated measures on net open positions, non-deliverable derivative offerings to customers and related-party transactions. Some of these measures have since been reversed. As the market integrates further with global liquidity, the lesson is not to fear integration but to further strengthen risk management, governance and oversight arrangements.

22. Third, a strictly principles-based regime carries its own risk of inconsistency. Detailed rules create rigidity; principles can create interpretational divergence. The answer is not a return to prescription, but stronger institutional judgement, clearer published customer standards, and shared interpretive experience through FEDAI. I would urge FEDAI to take the lead in bringing principles-based regulation to life by setting common standards among its members.

23. Finally, unauthorised entities offering online forex trading are seen to operate outside FEMA and ETP regulation altogether, and we continue to receive complaints of cheating and fraud from customers who did not know, until too late, that their platform had no authorisation whatsoever. The Alert List, cautionary advisories and awareness campaigns address this from the regulator's side; the heavier responsibility rests with FEDAI members and the AD banks who deal with the public every day. Please sensitise your customers and your staff suitably.

Recent Reforms: The Direction of Travel

24. Several recent regulatory measures reveal the direction in which regulation is evolving. The Authorised Persons Regulations, 2026, was issued on May 6th of this year. These has replaced franchisee arrangements with a Forex Correspondent Scheme based on a principal-agent model, placing explicit responsibility on the principal for due diligence, systems and controls, reporting, charges, customer service and grievance redress. The framework enables access to foreign exchange market for the retail customers. However, whether it does so safely will depend on the quality of governance in the 'principal'. I would encourage Authorised Dealers to engage with Forex Correspondents to improve delivery to end-users.

25. The Guarantees Regulations, 2026 have replaced a transaction-specific framework with broader eligibility linked to the permissibility of the underlying transaction, with unified reporting. The underlying idea is facilitating the productive needs rather than multiplying approval categories, while tracking emerging trends through data.

26. The Export and Import of Goods and Services Regulations, 2026, which will come in force from October 1 of this year, consolidate and strengthen the existing framework. It gives Authorised Dealers greater flexibility relating to extensions, reductions, set-off and third-party receipts and payments, recognise longer realisation periods for rupee-invoiced transactions, and permit simplified closure of specified small-value entries on declarations. Between now and October, ADs need to ensure the necessary preparatory work, and that the flexibility provided by regulation is passed on to the ultimate customer.

27. Draft Foreign Investment Rules, 2026, out for comment until this month-end, propose a simplified, principle-based, investor- and investee-neutral framework, and a clearer boundary between procedural FEMA requirements and FDI policy. I would encourage FEDAI and its members to respond substantively. Consultation is only as good as the industry's willingness to participate in it.

28. RBI's regulatory approach is consistent - simplify the rulebook, separate policy from procedure, delegate routine decisions, modernise reporting, and hold regulated entities accountable for outcomes. But ease of doing business is not achieved on the day a regulation is issued. It is achieved only when every bank branch and the customer-facing application actually reflect what the regulation intended.

FEDAI's Role as a Self-Regulatory Organisation

29. In January this year, the Reserve Bank recognised FEDAI as a Self-Regulatory Organisation for Authorised Dealers under the Omnibus Framework. FEDAI was already a de facto SRO. Its recognition brings structure to that role. It has a year to align its governance, systems and transparency arrangements with RBI's Omnibus requirements for SROs, and to broaden membership so that all categories of Authorised Dealers are represented - work that I would encourage the Association to pursue diligently.

30. What should a self-regulatory organisation do in the decade ahead? Four things. First, convert regulatory principles into consistent market practices without recreating prescriptive regulation. Second, set a higher benchmark for customer outcomes. This can be achieved by standardising policies as far as possible, hosting links to members' disclosures on FEDAI's portal so customers can compare them in one place, reviewing member websites, analyse complaints and recurring delays, promoting FX-Retail adoption, and publishing aggregate indicators of service quality.

31. Third, deepen professional capacity. This requires continuous training not only in regulations and products but also in trade structures, cyber risk, data, and ethical conduct, with succession arrangements for these roles. Certification should signify ongoing competence, not a qualification earned once. Fourth, support local-currency settlement through corridor-specific working groups, practical playbooks and engagement with overseas banking associations - and tell us early whether a bottleneck is regulatory, commercial or technological.

32. Above all, we expect the SRO to be candid. Tell us which provisions have become obsolete, where interpretation is diverging, and which practices that add to customer burden originate within banks rather than in regulation. A self-regulatory organisation earns its standing not by defending its members from the regulator, but by holding them to a standard the regulator does not need to explicitly impose.

Conclusion

33. I will conclude by spelling out the broad regulatory expectations. Facilitate with judgement. Use the flexibility you have been given, understand the transaction, and stand behind the decision. Standardise and facilitate the customer experience. Before initiating a transaction, a customer should know what is required, what it will cost, how long it will take, and where to go if something goes wrong. Innovate for scale and resilience. Use technology to make transactions simpler, reporting more accurate and controls stronger, and bring transparent platforms and effective hedging within practical reach of individuals and smaller businesses.

34. India's foreign exchange market will be ready for the next decade when it is deep enough to absorb global shocks, flexible enough to support new forms of trade and investment, disciplined enough to preserve orderly conditions, and fair enough to serve the smallest user with the same humility as the largest corporate client. We have made considerable progress in the first three but have some distance to travel in respect of the fourth. I am sure, collectively, we will reach our goal.

35. The Reserve Bank will continue to simplify and modernise the framework in consultation with all of you. What we ask in return is that the benefit reaches the customer. The next phase of reform will not be judged by the number of permissions removed, products introduced or platforms launched, but by the quality, speed, transparency and accessibility of the foreign exchange services that the citizens of our country receive. On the eve of Independence Day, this seems a reasonable thing to ask of a market that has come as far as this one has. I wish FEDAI and all its members every success in this shared endeavour.

Thank you.

1 Keynote Address delivered by Deputy Governor Shri Rohit Jain on the Annual Day of the Foreign Exchange Dealers' Association of India (FEDAI) on August 14, 2026