Banks should get more active in offshore rupee trade: RBI

MUMBAI: RBI governor Sanjay Malhotra on Friday called for Indian banks to emerge as market-makers in offshore markets, urging a more active global role for domestic lenders as the central bank seeks to shift rupee price discovery onshore, speaking at the FIMMDA-PDAI Annual Conference in Amsterdam.

Noting that Indian banks deal only with offshore market makers and not end-users, Malhotra said, “If the global INR market has to be on-shored, Indian banks will need to evolve as market-makers globally.” This reflects RBI’s concern that offshore non-deliverable forward (NDF) markets and global players are increasingly influencing the rupee.

The remarks underscore a “tail wagging the dog” dynamic seen by policymakers, where offshore NDF markets often lead price discovery. These markets enable large speculative positions that can move ahead of onshore flows and at times amplify pressure on the currency. When offshore rates diverge from domestic spot and forward markets, arbitrage and hedging flows transmit those signals back onshore, allowing offshore sentiment to drive local pricing.

By pushing Indian banks to act as global market-makers, RBI aims to reduce persistent arbitrage between onshore and offshore markets, anchor price discovery domestically, and limit speculative one-way trades that strain FX liquidity and complicate volatility management.

Malhotra outlined other priorities, noting that liquidity in govt securities needs improvement across tenors, derivatives markets remain concentrated, and credit derivatives are “largely an underutilised area.” He also said banks should expand access to the FX retail platform so “retail users get a fair deal,” while emphasising responsibilities on fairness, transparency and market integrity.
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