Some banks are said to stop quoting interbank USD/INR forwards after the RBI widened scope of forex risk reserve, according to traders

Episodes in which the RBI has widened reserve or capital requirements on FX positions have a familiar sequence: an ambiguous circular, banks pulling quotes until legal and compliance teams parse scope, spreads on interbank forwards gapping out, and eventual clarification that market-making and trading books are exempt, which is what the sourcing here already suggests. The distinction that matters is between banks' client hedging flows, which attract the requirement, and interbank market-making, which historically has been carved out precisely because taxing it kills liquidity without reducing net positions. When quoting stops at the interbank level, the effect transmits quickly into wider onshore forward premia, a choppier USD/INR spot fixing process, and a larger onshore-offshore wedge against NDF pricing, since offshore desks become the residual price setters. The RBI's prior form in these episodes is to issue FAQs or informal guidance within days once market dysfunction becomes visible, and the tell is usually whether forward premia normalise on the clarification or whether the central bank lets the tighter regime stand as a soft curb on speculative positioning. Worth watching is any formal circular follow-up, the behaviour of the onshore-NDF basis, and whether the onshore spot band sees heavier RBI smoothing while forward liquidity is impaired. Until scope is confirmed, the confusion itself is the market state, not the rule change.