Insider: Indian regulators are reviewing how banks are closing rupee arbitrage trades.

Six sources said that the Reserve Bank of India is reviewing the operation methods used by large banks to close rupee arbitrage positions, out of concern that such trades may violate regulations and disrupt the stability of the rupee exchange rate. At the end of March and beginning of April, due to tensions with Iran and outflows of foreign capital, the rupee fell to a historical low. In order to support the domestic currency exchange rate, the Reserve Bank of India mandated that banks close rupee arbitrage trades worth up to $40 billion in the onshore market and the non-deliverable forward forex market without initial capital. After the central bank introduced relevant measures, the rupee to US dollar exchange rate rebounded from near 95.20 to around 92.50, with gains on Monday showing some pullback. Three sources revealed that the central bank's rare review of foreign exchange transactions focused on checking whether banks were reselling arbitrage trades to businesses and affiliated entities. The central bank has questioned personnel from the treasury departments of at least five large banks, reviewed their correspondence with clients, and obtained detailed information on transactions with affiliated parties.