RBI Forward Book Shows ₹434 Billion Valuation Loss As Rupee Pressure Bites

The Reserve Bank of India’s forward currency book showed a ₹434.03 billion mark-to-market valuation loss at the end of March, a sharp swing from a gain a year earlier, underscoring the accounting impact of a year in which the rupee came under pressure and the central bank remained active in the foreign exchange market.

The Marking to market of outstanding forward contracts was debited to the Foreign Exchange Forward Contracts Valuation Account, with a contra credit to the Provision for Forward Contracts Valuation Account. A year earlier, the RBI had recorded a net unrealised gain of ₹69.85 billion on the same account.

As per its accounting policy, the debit balance in the forward contracts valuation account was adjusted against the Contingency Fund on March 31 and reversed on the first working day of the following accounting year.

It does not necessarily represent a realised loss, but it shows the extent to which the RBI’s outstanding forward contracts moved against year-end market prices.

The rupee had depreciated through much of 2025-26 as trade-related uncertainty, geopolitical tensions, equity outflows and a wider merchandise trade deficit weighed on the currency. The annual report’s financial markets chapter said the RBI intervened in the onshore and offshore markets to contain excessive volatility.

The rupee fell 9.6% against the dollar in the year to March 31, 2026.

Balance Shift
The central bank’s balance sheet expanded 20.6% to ₹91.97 trillion as of March 31, from ₹76.25 trillion a year earlier. The rise was driven by domestic investments, gold, and foreign investments, which increased 44.9%, 63.8% and 7.9%, respectively.

The asset mix also shifted, with domestic assets rising to 29.1% of total assets from 25.7% a year earlier, while foreign currency assets, gold, and loans and advances to financial institutions outside India fell as a share to 70.9% from 74.3%.

The new mix reflects the RBI’s larger holding of rupee securities after a year in which it injected liquidity through open market purchases and other operations. The central bank’s larger government securities book helped ease liquidity conditions, even as bond yields faced pressure from fiscal, oil, and geopolitical risks.

The annual report said the balance sheet expansion on the liabilities side was driven by revaluation accounts, notes issued, deposits and other liabilities. Revaluation accounts jumped 63.4%, notes issued rose 11.8%, deposits increased 11.6%, and other liabilities rose 21.1%.

All That Glitters
The Currency and Gold Revaluation Account rose to ₹21.69 trillion from ₹13.03 trillion a year earlier, reflecting the combined impact of higher gold prices and the rupee’s fall against major currencies. These are unrealised valuation gains and are not available for distribution as income, but they strengthen the RBI’s accounting buffers.

The RBI’s total gold holdings rose only marginally to 880.52 metric tonnes as of March 31 from 879.58 metric tonnes a year earlier, an increase of just 0.94 metric tonne. The value of gold held as an asset of the Banking Department, however, rose 63.6% to ₹7.06 trillion from ₹4.32 trillion. The value of gold held as an asset of the Issue Department also rose sharply, increasing 64.1% to ₹3.88 trillion from ₹2.37 trillion.

Reserve Cushion
The reserves composition also changed materially. India’s foreign exchange reserves rose 3.4% to $691.11 billion as of March 31 from $668.33 billion a year earlier. Foreign currency assets, however, fell 2.7% to $552.28 billion. Gold rose 47.6% to $115.40 billion, accounting for most of the increase in reserves in dollar terms.

That means the headline rise in reserves was not driven by stronger foreign currency assets. It was driven largely by bullion valuation, with the rupee value of reserves further helped by currency translation effects.

Income from foreign sources rose 26.6% to ₹3.28 trillion in 2025-26, while the rate of earnings on foreign currency assets increased to 6.4% from 5.3% a year earlier. Net income from domestic sources rose 25.9% to ₹1.00 trillion, mainly because of higher interest income from rupee securities.

Total income increased 26.4% to ₹4.28 trillion. Expenditure more than doubled to ₹1.41 trillion, largely because of higher provisioning. The RBI transferred ₹1.09 trillion to the Contingency Fund, compared with ₹448.62 billion a year earlier, and made no provision to the Asset Development Fund.

The annual report said the year ended with a surplus of ₹2.87 trillion, up 6.7% from ₹2.69 trillion a year earlier.

Currency liabilities continued to grow, with notes issued rising 11.8% to ₹41.25 trillion, and notes in circulation rising to ₹41.24 trillion. The value of retail central bank digital currency in circulation fell to ₹7.72 billion from ₹10.16 billion, while wholesale central bank digital currency had nil closing balance because balances are redeemed back to participants’ current accounts at the end of the day.

The accounts also showed that printing costs fell, with expenditure on printing notes declining to ₹48.75 billion from ₹63.73 billion, reflecting reduced indent for bank notes during the year.

The broader message from the accounts is that the RBI’s balance sheet became larger, more valuation-sensitive and somewhat more domestically tilted during 2025-26. The forward-contract valuation loss points to the accounting footprint of currency-market operations, the gold jump reflects a major valuation cushion, and the rise in domestic investments shows how liquidity operations and bond purchases became central to the RBI’s financial position.