$7 Billion in Arbitrage Trades to Be Unwound by April 10

Indian banks are working to unwind significant arbitrage trades between rupee non-deliverable forwards (NDFs) and onshore markets to comply with a deadline set by the Reserve Bank of India (RBI) for April 10, 2026.

The RBI has mandated a $100 million cap on net open positions in the onshore foreign exchange market by the end of each business day. This regulatory move is intended to curb speculative long positions in the currency market.

An estimated $7 billion of open arbitrage trades are set to be unwound by the April 10 deadline, according to reporting from Risk.net. Other estimates suggest the total size of such positions could range from $25 billion to over $50 billion.

Mechanics of the Arbitrage Trades

The arbitrage positions were established by banks buying U.S. Dollars in the onshore market and simultaneously selling them in the NDF market. This strategy allowed banks to exploit the spread between the two market segments.

The spread between these markets widened significantly due to increased volatility and a decline in the value of the Indian rupee. Factors contributing to this pressure included heightened risk aversion and oil-driven pressures linked to the Iran war.

To comply with the new RBI limits, banks are expected to sell dollars in the domestic foreign exchange market as they unwind these existing positions.

Market Impact and Rupee Performance

The unwinding of these trades is expected to lead to a rally for the Indian rupee. However, the process may cause short-term volatility, with traders anticipating wide spreads and choppy price action.

The rupee has faced intense pressure due to mounting concerns over the impact of higher oil prices on India’s economic outlook and persistent portfolio outflows.

In March 2026, the currency dropped more than 4% through Friday, March 28, marking its worst monthly performance in more than seven years. On March 28, 2026, the rupee fell nearly 1% to 94.8125 and reached an all-time low of 94.8400.

The RBI has been intervening in both the onshore and NDF markets to support the currency and slow the pace of the decline.

Compliance Timeline

The directive for the $100 million cap was issued by the RBI on Friday, March 28, 2026. Banks were given until April 10, 2026, to meet the new end-of-day position limits.

Data indicates that banks began exiting a bulk of these arbitrage positions ahead of the deadline, with significant trade activity occurring between April 1 and April 7, 2026.