UPDATE 1 — India's tough FX measures rattle banks, trigger unintended consequences

RBI curbs prompt banks to withhold dollar-forward quotes - bankers Thinner liquidity widens spreads and amplifies price swings Clients shift to NDF market on fears onshore hedging costs may rise (Rewrites with details, comments from bankers and analysts, adds graphic) By Nimesh Vora and Jaspreet Kalra MUMBAI, Oct 13 (Reuters) — A series of tough regulatory steps by the Indian central bank, aimed at supporting the rupee, is leading to unintended consequences, with several lenders holding back on quoting dollar-rupee forwards, according to eight bankers. The measures and a heightened scrutiny of dollar purchases have led to uncertainty about the scope of the new rules and whether more curbs may be in the offing, the bankers said. Since Saturday, the RBI has rerouted oil dollar demand to a special facility, imposed a cash margin for derivatives used to hedge some merchant transactions and subsequently extended the margin to banks hedging their own assets and liabilities. The RBI has also told banks to offer non-deliverable contracts to clients only for protecting underlying exposures. The curbs followed a drop in the rupee to near record lows of 96.96 against the dollar last week, des