The Reserve Bank of India has introduced a major regulatory shift aimed at modernizing how financial institutions handle gold and currency risks. These reforms, detailed in draft directions issued this week, grant banks significantly more freedom to manage price volatility in international markets. Under the new framework, banks participating in the Gold Monetization Scheme and those authorized to handle forward gold contracts can now hedge their price risk using both exchange-traded and over-the-counter (OTC) products in overseas markets. This move is designed to deepen market liquidity and provide domestic lenders with sophisticated tools to navigate global price swings. **Gold Market Performance** The regulatory update comes during a period of sharp correction in the domestic bullion market. After reaching a peak of **₹180,779 per 10 grams** in late January, gold prices have cooled significantly following the 2026-27 Union Budget and a stronger U.S. dollar. * **24K Gold:** Currently trading near **₹156,430 per 10 grams** in major metros like Delhi and Mumbai. * **22K Gold:** Retail rates have settled around **₹143,390 per 10 grams**. * **Silver:** Witnessing higher volatility, closing near **₹260,000 per kg**, down from earlier highs of **₹380,000**. Analysts note that while prices have dropped approximately **15%** from their record highs, the market remains in a consolidation phase. The RBI’s new hedging rules are expected to help banks offer more stable pricing to consumers by offsetting these sharp intraday movements. **Rupee Derivatives and Global Integration** A core pillar of the RBI proposal is the expansion of Rupee-based derivative contracts. Authorized Dealer Category-I banks will now be required to report all foreign exchange derivative transactions involving the Rupee undertaken by their related parties globally. This reporting mandate aims to eliminate "blind spots" in the offshore market, ensuring that price discovery remains transparent and consistent across onshore and offshore platforms. Furthermore, the RBI is moving toward a **24-hour trading** mindset. Banks may now execute trades across approved offshore electronic venues and international financial centers, allowing Indian participants to tap into global liquidity pools outside traditional domestic hours. **Operational Freedom and Risk Safeguards** The central bank is also easing the way banks use their idle foreign currency. New provisions allow lenders to: * Place surplus funds overnight or invest in short-dated overseas government paper. * Extend loans in both Rupee and foreign currency at home or abroad. * Engage in non-deliverable derivative contracts (NDDCs) with offshore counterparties. To maintain stability, the RBI has capped certain activities. For instance, when using option-based hedging products, banks must ensure there is **no net receipt of premium**. Additionally, new credit rules effective **April 1, 2026**, will mandate **100% collateral** for bank funding to market intermediaries, reducing systemic leverage. These combined measures represent a strategic push to integrate India’s financial markets with the global economy while strengthening the internal risk management frameworks of the banking sector.