India's FX foward market

Question

https://www.bloomberg.com/news/articles/2021-05-04/india-asks-state-banks-to-protect-dollar-assets-on-cairn-concern

Based on this article USDINR forward premium has spiked as there is abundant USD liquidity in the country due to dollars repatriation:

"Banks were told by the authorities to protect their dollar deposits on concern that U.K.-based Cairn Energy Plc will move to seize India’s offshore assets after winning an arbitration ruling"

"The move has led to a sudden flood of dollars in India’s banking system, with the state banks staying away from receiving the greenback in the forwards market. As a result, the one-month forward premium on the currency pair jumped to as high as 10%, "

"There are no cash receivers in the market, everyone is a payer,” said Anil Kumar Bhansali, a treasurer at Finrex Treasury Advisors. Dollar “cash levels are high. So near-term premiums are also high."

Has forward premium increased because the implied USD rate has risen due to excess dollar liquidity in the country? and why local banks stay away from receiving USD (long USDINR) in the forward market?

Answer 1

Here's an answer: Cairn Energy has had the former head of FX at HSBC imprisoned by the US justice department for the way that HSBC worked a multi billion UK and India corporate finance deal. To do with something called "pre hedging" from which the bank would make extra money at the possible expense of the client (Cairn) on the probability the deal was likely to move the GBPUSD market - a question of whether there are any other large deals to sell USD at the same time that HSBC are going to buy USD, or unusual market volatility to sell USD as HSBC buy.

https://www.bloomberg.com/news/articles/2020-11-02/ex-hsbc-trader-denied-supreme-court-appeal-of-fraud-conviction

So.... now this.

The fact that USD was involved in a deal between a UK and an India corporate means that the US claims a right of jurisdiction - the Cairn deal had nothing to do with US except using more liquid GBPUSD rates instead of GBPINR rates.

Can we deduce that after a bank unfriendly USA ruling for Cairn, and now another arbitration ruling for Cairn, the Indian state banks don't want any risk of getting caught up in a legal action from USA currency use (or abuse) on the basis that a customer transaction takes place in USDINR? Not that a particular currency should matter.

Are USA and other rulings altering precedents on using USD (and FX market practise) that India banks are trying to come to terms with - easier not to use USD even if it's more liquid - causing USD forward costs to rise to reflect the risks. Backed up by corporate activism from the likes of Cairn Energy Plc.