India's central bank stepping up NDF activity and impact on global payments

Your business operates in a world where currency volatility can make or break international transactions. When you're sending payments to India or managing cross-border operations, the Reserve Bank of India's recent moves in the Non-Deliverable Forward (NDF) market create ripples that reach your finance team's daily operations. The RBI cut the Repo Rate by 25 basis points to 6.0% in its April meeting, marking the second consecutive rate cut as the central bank shifts its monetary policy stance from 'neutral' to 'accommodative' to stimulate the economy ¹.

These policy shifts matter because they directly influence exchange rates, hedging costs, and the speed at which your international payments settle. Understanding how central bank interventions in the NDF market affect your global payment infrastructure helps you make smarter decisions about when to transfer funds, how to structure currency hedges, and which payment rails to use for optimal efficiency.

Understanding NDFs and their role in global payments

Non-Deliverable Forwards represent contracts where two parties agree to exchange currencies at a future date, but instead of physically exchanging the currencies, they settle the difference in cash. This mechanism becomes particularly important for currencies like the Indian Rupee, which face certain restrictions on international trading.

The NDF market serves as a crucial bridge for businesses needing to hedge currency risk when dealing with restricted currencies. When you're planning to pay suppliers in India three months from now, NDFs let you lock in an exchange rate today without actually moving currencies across borders until the payment date. This creates predictability in your cash flows and protects against adverse currency movements.

India's GDP grew by 7.8% in the first quarter of 2024, fuelled by strong performance in the industrial and services sectors, making it one of the world's fastest-growing economies ². This growth attracts international business but also creates currency volatility that makes NDFs increasingly important for managing risk.

The RBI's evolving approach to NDF markets

The Reserve Bank of India has traditionally maintained strict controls over the rupee's international trading, but recent policy shifts signal a more nuanced approach. The RBI's Monetary Policy Committee has reduced the SDF interest rate to 5.75% and the MSF interest rate to 6.25%, demonstrating active management of monetary conditions ¹.

These interventions serve multiple purposes. First, they help stabilize the rupee during periods of volatility. Second, they influence the cost of hedging for international businesses. Third, they signal the RBI's commitment to maintaining orderly market conditions while gradually liberalizing currency controls.

The Indian Rupee faces pressure from continued foreign capital outflows and US Dollar purchases by importers, foreign investors, and oil companies ¹. As India is the third-largest oil consumer in the world, oil price fluctuations significantly impact the rupee's value and the RBI's intervention strategies.

Impact on cross-border payment infrastructure

When central banks increase NDF activity, the effects cascade through the entire global payment ecosystem. International transfers are expected to increase five percent per year until 2027, creating more exposure to currency volatility ³. Your payment infrastructure must adapt to handle these complexities efficiently.

The global B2B payments market reached US$ 1,108.6 Billion in 2023 and is expected to reach US$ 2,117.0 Billion by 2032, exhibiting a growth rate of 7.3% during 2024-2032 ⁴. This growth intensifies the need for sophisticated currency management tools that can navigate central bank interventions effectively.

Modern payment systems increasingly rely on real-time data to optimize currency conversions. When the RBI steps up NDF activity, it creates pricing signals that smart payment platforms use to time transactions optimally. According to the Swift network, 89 percent of payments arrive at the destination bank within an hour, with half reaching the beneficiary account in less than five minutes ³.

Currency volatility and business implications

The USD/INR pair continues its upward trend, with prices surpassing the key Exponential Moving Average 100-day indicator, signaling sustained pressure on the rupee ¹. This volatility creates both challenges and opportunities for businesses managing international payments.

Private equity investments in India hit $3.64 billion in April-June 2024, a 75% rise from the $2.08 billion recorded in January-March 2024 ². This investment surge increases demand for sophisticated currency hedging solutions, particularly as companies navigate the complexities of repatriating profits or managing ongoing operational expenses.

For businesses operating between Canada and India, currency management becomes even more critical. Airwallex offers high-speed business transfers to global suppliers and employees in India from Canada at low interbank rates, with funds received in as little as one business day ⁵. This speed advantage becomes particularly valuable during periods of heightened NDF activity when exchange rates can shift rapidly.

Digital payment evolution in India

India's digital payment landscape transforms how international transactions flow into the country. According to the NIC, UPI's total transaction volume reached 83.75 billion at the end of 2023 ⁶. This digital infrastructure creates new pathways for international payments that bypass traditional banking channels.

The India neobanking market is projected to grow at a CAGR of 42.16% from FY2025 to FY2032, increasing from USD 9.38 billion in FY2024 to USD 156.47 billion in FY2032 ⁷. This explosive growth reflects changing payment preferences that international businesses must accommodate.

India had more than 820 million active internet users till March 2024, with internet penetration growing at 8% year-over-year ⁶. This digital adoption creates opportunities for more efficient cross-border payment methods that can navigate currency volatility more effectively than traditional banking channels.

Optimizing payment strategies amid NDF activity

When the RBI increases NDF interventions, businesses need adaptive payment strategies. Multi-currency accounts allow you to receive, hold, and send funds in different currencies, enabling operations anywhere in the world ⁸. This flexibility becomes crucial when central bank actions create sudden currency movements.

Timing matters significantly in cross-border payments. The bilateral trade between India and the UK increased to $21.34 billion in 2023-24 from $20.36 billion in 2022-23 ². Companies managing these trade flows must balance the need for timely payments with the desire to optimize exchange rates.

Banks can charge up to 4% on international transfers, often claiming they don't charge fees while profiting from the spread between mid-market rates and customer rates ⁹. During periods of increased NDF activity, these spreads can widen significantly, making it essential to choose payment providers that offer transparent pricing.

Technology solutions for NDF-related challenges

Modern financial technology addresses the complexities created by central bank NDF interventions. Real-time payments systems are expected to generate $173 billion in additional economic output by 2026 ³. These systems help businesses respond quickly to currency movements triggered by central bank actions.

Singapore recently integrated its real-time PayNow network with faster payment networks in India, Thailand, and Malaysia ³. These connections create alternative pathways for payments that can sometimes bypass the volatility in traditional foreign exchange markets.

Airwallex's Global Accounts provide access to local account details around the world, enabling quick money transfers without traditional banking delays ⁸. This infrastructure becomes particularly valuable when NDF market activity creates uncertainty in traditional payment channels.

Regulatory considerations and compliance

The RBI's increased NDF activity occurs within a broader regulatory framework. In India, compliance with PCI DSS is mandated by the Reserve Bank of India ¹⁰. These requirements affect how international payment providers structure their operations when serving Indian markets.

As per RBI data, retail online payments in India grew from 162 crore transactions in FY2012-13 to over 14,726 crore transactions in FY2023-FY24 ⁶. This growth necessitates robust compliance frameworks that can handle increased transaction volumes while managing currency risk.

Financial services firms face more regulations and compliance concerns than companies in almost any other industry ¹¹. When central banks increase market interventions, compliance requirements often intensify, requiring businesses to maintain detailed records of currency hedging activities and payment flows.

Future outlook for NDF markets and global payments

The intersection of central bank policy and payment technology continues evolving rapidly. Around 90 percent of central banks globally are currently working on developing a Central Bank Digital Currency ³. These developments could fundamentally change how NDFs function and how businesses manage currency risk.

India's commitment to reduce carbon emissions intensity of its GDP by 45% by 2030 and achieve 500 gigawatts of renewable energy capacity signals long-term economic transformation ². These structural changes will influence currency dynamics and the RBI's approach to market intervention.

M&A activity with Indian involvement grew 4.4% in the first half of 2024 to $37.3 billion ². This corporate activity creates additional demand for sophisticated currency management solutions that can navigate both NDF markets and regulatory requirements.

Practical strategies for businesses

Navigating increased NDF activity requires practical approaches to payment management. According to LexisNexis, up to 50 percent of payments that don't complete or are delayed result from simple data entry problems ³. Ensuring accurate payment information becomes even more critical when currency volatility adds complexity.

Airwallex supports transfers to 150+ countries and regions in 60+ currencies, providing flexibility to route payments through optimal channels ⁵. This global reach helps businesses diversify their currency exposure and reduce dependence on any single market's volatility.

The global fintech market is expected to grow at a CAGR of 15.1% between 2025 and 2032, reaching USD 412.65 billion by 2032 ¹². This growth brings new tools for managing currency risk, from AI-powered hedging strategies to blockchain-based settlement systems.

Building resilient payment operations

Creating payment operations that can withstand NDF market volatility requires strategic planning. Internet-specific, financial services, and computer software companies accounted for almost 50% of total private equity investments into India in January-June 2024 ². These sectors demonstrate how technology-enabled businesses adapt to currency challenges.

Airwallex offers market-leading FX rates on every transaction with zero hidden fees, using local networks to eliminate transaction fees and deliver funds faster ⁵. This transparency becomes crucial when NDF activity creates pricing uncertainty in traditional banking channels.

The YONO app was used to obtain 64% of all savings accounts in India in 2023 ⁷. This digital adoption shows how payment preferences evolve, requiring international businesses to adapt their payment strategies accordingly.

Conclusion

The Reserve Bank of India's increased NDF activity represents a significant shift in how one of the world's fastest-growing economies manages its currency. For businesses operating internationally, understanding these dynamics helps optimize payment strategies, reduce costs, and manage risk more effectively.

India's total market capitalisation has surpassed $5 trillion, making it the fourth-largest economy globally ². This economic scale ensures that RBI policies will continue influencing global payment flows for years to come.

Success in this environment requires combining sophisticated technology with practical payment strategies. Whether you're managing supplier payments, employee compensation, or investment flows, understanding how NDF markets affect your operations enables better decision-making. Modern payment platforms that offer transparency, speed, and flexibility provide the tools needed to navigate this complex landscape effectively.

By staying informed about central bank activities and leveraging advanced payment infrastructure, businesses can turn currency volatility from a challenge into a manageable aspect of international operations. The key lies in choosing the right partners and platforms that understand both the technical and strategic aspects of cross-border payments in an era of active central bank intervention.

FAQ

What are Non-Deliverable Forwards (NDFs) and how do they affect global payments?

Non-Deliverable Forwards (NDFs) are financial derivatives that allow businesses to hedge against currency risk without physically exchanging the underlying currencies. When India's central bank increases NDF activity, it creates more opportunities for companies to manage rupee exposure, but also introduces additional volatility that can impact the cost and timing of international payments.

How is India's economic growth affecting cross-border payment volumes?

India's robust economic performance, with GDP growing 7.8% in Q1 2024, is driving increased cross-border payment activity. As one of the world's fastest-growing economies, India's strong industrial and services sectors are attracting more international business, leading to higher volumes of payments to and from the country.

What impact does the Reserve Bank of India's monetary policy have on international transfers?

The RBI's monetary policy decisions, including recent repo rate cuts, directly influence rupee volatility and exchange rates. These changes affect the cost of sending money to India and can create timing considerations for businesses planning international transfers, as currency fluctuations can significantly impact transaction values.

How can businesses optimize their payments to India amid increased NDF activity?

Businesses can leverage multi-currency accounts and specialized international transfer services to better manage rupee exposure. Platforms like Airwallex offer competitive exchange rates and hedging tools that help companies navigate currency volatility while sending money to India efficiently and cost-effectively.

What role does India's digital payment infrastructure play in global transactions?

India's rapidly expanding digital payment ecosystem, driven by smartphone penetration and AI-based payment applications, is revolutionizing how international businesses interact with Indian markets. The growth in online payment apps and digital banking infrastructure is making cross-border transactions faster and more accessible for global companies.

How do currency hedging strategies help manage risks in Indian market transactions?

Currency hedging through instruments like NDFs allows businesses to lock in exchange rates and protect against adverse currency movements when dealing with Indian rupee transactions. This is particularly important given India's economic volatility and the RBI's active monetary policy adjustments, which can create significant exchange rate fluctuations.

Citations

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12. https://www.marketsandata.com/industry-reports/fintech-market