It is designed to make large dollar-buying hedges costlier, discourage speculative demand for dollars, and support orderly functioning of the forex market amid rupee pressure

• The Foreign Exchange Risk Reserve (FERR) is a critical monetary and regulatory policy tool introduced by the Reserve Bank of India (RBI) under the Foreign Exchange Management Act (FEMA), 1999 and the RBI Act, 1934.
• The RBI mandated that dealers must hold 20% of the rupee equivalent of the contract’s notional amount in cash with the central bank.
• Dealers must maintain the cash reserve continuously until the contract’s termination or maturity and report it daily through the RBI’s Centralised Information Management System (CIMS).

Source: The Indian Express