The Reserve Bank of India has revoked Paragraph 37 of the Small Finance Banks – Miscellaneous Directions, 2025, eliminating limits on non-option derivative contracts with immediate effect.
RBI Drops Derivatives Position Limits for Small Finance Banks
In a significant regulatory update, the Reserve Bank of India (RBI) has amended the Small Finance Banks – Miscellaneous Directions, 2025, effective immediately. The amendment deletes Paragraph 37, which previously imposed limits on non-option derivative contracts for these banks.
This move aligns small finance banks with broader market participants, allowing greater flexibility in managing foreign exchange and interest rate risks. The RBI has not issued detailed reasoning but is understood to be streamlining prudential norms across categories of banks.
Practitioners should note that while exposure limits are removed, overall risk management frameworks under the Master Direction on Risk Management and Derivatives remain applicable. Institutions must ensure internal limits are prudent and board-approved.
