Master Direction - Risk Management and Inter-Bank Dealings (Updated as on May 03, 2024) - ஆர்பிஐ - Reserve Bank of India
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சொத்து வெளியீட்டாளர்
Master Direction - Risk Management and Inter-Bank Dealings (Updated as on May 03, 2024)
updated-as-on:
- 2024-05-03
- 2023-06-06
- 2020-09-01
- 2020-06-01
- 2020-01-07
- 2018-04-02
- 2018-02-28
- 2017-11-09
- 2017-10-13
- 2017-03-21
- 2017-02-02
- 2016-07-05
RBI/FMRD/2016-17/31 July 5, 2016 All Authorised Persons Madam / Sir, Master Direction - Risk Management and Inter-Bank Dealings In exercise of the powers conferred by clause (h) of sub-section (2) of section 47 of the Foreign Exchange Management Act (FEMA), 1999 (42 of 1999), the Reserve Bank has framed regulations to promote orderly development and maintenance of foreign exchange market in India through Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 Notification No. FEMA 25/RB-2000 dated May 3, 2000 and subsequent amendments thereto. Attention is also drawn to provisions in Notification No. FEMA 1/2000-RB, Regulation 4(2) of Notification No. FEMA 3/RB-2000 and subsequent amendments thereto. All of the above govern the Foreign Exchange Derivative Contracts, Overseas Commodity & Freight Hedging, Rupee Accounts of Non-Resident Banks and Inter-Bank Foreign Exchange Dealings etc. These Regulations are amended from time to time to incorporate the changes in the regulatory framework and published through amendment notifications. 2. Within the contours of the Regulations, the Reserve Bank issues directions to Authorised Persons under Section 11 of the Foreign Exchange Management Act (FEMA), 1999. These directions lay down the modalities as to how the foreign exchange business has to be conducted by the Authorised Persons with their customers / constituents with a view to implementing the regulations framed. Further, Reserve Bank of India, in public interest and / or to regulate the financial system of the country to its advantage, issues directions to agencies undertaking foreign exchange transactions under Section 45W of the Reserve Bank of India Act, 1934. 3. Instructions issued in respect of Foreign Exchange Derivative Contracts, Overseas Commodity & Freight Hedging, Rupee Accounts of Non-Resident Banks and Inter-Bank Foreign Exchange Dealings etc. have been compiled in this Master Direction. The list of underlying notifications / circulars which form the basis of this Master Direction is furnished in the Appendix I. 4. It may be noted that, whenever necessary, Reserve Bank shall issue directions to Authorised Persons through A.P. (DIR Series) Circulars in regard to any change in the Regulations or the manner in which relative transactions are to be conducted by the Authorised Persons with their customers/ constituents. The Master Direction issued herewith shall be amended suitably simultaneously. 5. Authorised Persons shall mean Authorised Dealer Category-I banks, Standalone Primary Dealers authorised as Authorised Dealer Category–III and for the purpose of exchange traded currency derivatives, Recognised Stock Exchanges and Recognised Clearing Corporations, authorised under Section 10 (1) of the FEMA, 1999. Yours faithfully, (Dimple Bhandia) PART – A
SECTION I
1Facilities for Persons Resident in India (other than Authorised Dealers) and for Persons Resident outside India
1. Definitions
(i) In these Directions, unless the context otherwise requires:
(a) 'Anticipated exposure' means currency risk arising on account of current or capital account transactions permissible under the FEMA, 1999 or any rules or regulations made thereunder, that are proposed to be entered into in future.
(b) 'Contracted exposure' means currency risk arising on account of current or capital account transactions permissible under the FEMA, 1999 or any rules or regulations made thereunder, that have been entered into.
Explanation for the purpose of (a) and (b):
(c) 'Currency risk' means the potential for loss on account of movement in exchange rates of INR against a foreign currency or on account of movement in exchange rates of one foreign currency against another or on account of movement of interest rate applicable to a foreign currency.
(d) 'Deliverable foreign exchange derivative contract' means an OTC foreign exchange derivative contract other than a non-deliverable foreign exchange derivative contract (NDDC).
(e) 'Electronic Trading Platform (ETP)' shall have the same meaning as assigned to it in the Para 2(1)(iii) of the Electronic Trading Platforms (Reserve Bank) Directions, 2018 dated October 05, 2018, as amended from time to time.
(f) 'Exchange traded currency derivative' shall have the same meaning as assigned to it in the Regulation 2(xvi) of the Foreign Exchange Management (Foreign exchange derivative contracts) Regulations, 2000 (Notification no. FEMA.25/2000-RB dated May 03, 2000), as amended from time to time.
(g) 'Foreign currency interest rate derivative contract' means a financial contract which derives its value from the change in the interest rate of a foreign currency and which is for settlement at a future date, i.e. any date later than the spot settlement date, provided that contracts involving currencies of Nepal and Bhutan shall not qualify under this definition.
(h) 'Foreign exchange derivative contract' means a financial contract which derives its value from the change in the exchange rate of two currencies at least one of which is not Indian Rupee and which is for settlement at a future date, i.e. any date later than the spot settlement date, provided that contracts involving currencies of Nepal and Bhutan shall not qualify under this definition.
(i) 'Hedging' means the activity of undertaking a foreign exchange derivative / foreign currency interest rate derivative transaction to offset the impact of an anticipated or a contracted exposure.
(j) 'Leveraged derivative' means an OTC derivative whose potential pay-out during the tenure of the derivative can be more than the notional amount of the contract or whose pay-out calculation involves effective multiplication, by a factor of more than 1.0 of either the notional amount or the underlying rate / price / index.
(k) 'Mid-market mark' means the price of the derivative that is free from profit, credit reserve, hedging, funding, liquidity, or any other costs or adjustments.
(l) 'Net worth' shall have the same meaning as assigned to it in the Section 2(57) of the Companies Act, 2013.
(m) 'Non-deliverable foreign exchange derivative contract (NDDC)' means an OTC foreign exchange derivative contract in which there is no delivery of the notional amount of the underlying currencies of the contract and which is cash-settled.
(n) 'Over-the-counter (OTC) derivative' means a derivative (deliverable or non-deliverable) other than those which are traded on Recognised Stock Exchanges and shall include those traded on electronic trading platforms (ETPs).
(o) 'Recognised clearing corporation' shall have the same meaning as assigned to it in Regulation 2(1)(p) of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 dated October 03, 2018, as amended from time to time.
(p) 'Recognised stock exchange' shall have the same meaning as assigned to it in Regulation 2(1)(q) of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 dated October 03, 2018, as amended from time to time.
(q) 'Turnover' shall have the same meaning as assigned to it in the Section 2(91) of the Companies Act, 2013.
(r) 'User' shall mean any person as defined in the Section 2(u) of the FEMA, 1999 (42 of 1999), whether resident in India or resident outside India, other than an Authorised Dealer.
(ii) For the purpose of these Directions, Authorised Dealer shall mean Authorised Dealer Category-I banks and Standalone Primary Dealers authorised as Authorised Dealer Category-III, unless stated otherwise. Any specific reference solely to Authorised Dealer Category-I banks shall not be applicable for Standalone Primary Dealers.
(iii) Specific types of foreign exchange derivative contracts and foreign currency interest rate derivative contracts shall have the meaning as provided at Annex XXII of this Master Direction.
(iv) Words and expressions used but not defined in these Directions shall have the meaning as assigned to them in the Foreign Exchange Management Act, 1999, Reserve Bank of India Act, 1934, and Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000, as amended from time to time.
2. Directions for OTC foreign exchange transactions
2.1 User Classification Framework
(i) Authorised Dealers shall classify users as retail or non-retail for the purpose of offering foreign exchange derivative contracts and foreign currency interest rate derivative contracts.
(ii) The following users shall be eligible to be classified as non-retail users:
(iii) Any user who is not eligible to be classified as a non-retail user shall be classified as a retail user.
(iv) Any user who is otherwise eligible to be classified as a non-retail user shall have the option to get classified as a retail user.
(v) Any user who is otherwise eligible to be classified as a retail user shall have the option to get classified as a non-retail user subject to the condition that the user makes a request to an Authorised Dealer in this regard and the Authorised Dealer is satisfied that the user has the risk management capabilities suitable for classification as a non-retail user.
2.2 Products
(i) Authorised Dealers may offer the following foreign exchange contracts, involving INR or otherwise, to users (both retail and non-retail):
Note: Money changing transactions are not in the scope of these Directions and shall be governed by the Master Direction – Money Changing Activities dated January 01, 2016, as amended from time to time, or any other rule, regulation or Direction issued in this regard.
(ii) Authorised Dealers may offer the following foreign exchange derivative contracts, involving INR or otherwise, to retail users:
(iii) Authorised Dealers may offer the following foreign exchange derivative contracts, involving INR or otherwise, to non-retail users:
(iv) Authorised Dealers may offer the following foreign currency interest rate derivative contracts to retail users:
(v) Authorised Dealers may offer the following foreign currency interest rate derivative contracts to non-retail users:
(vi) NDDCs involving INR can be offered to residents and non-residents by an Authorised Dealer Category-I bank, provided the Authorised Dealer Category-I bank (or its non-resident parent bank) has an operating International Financial Services Centre (IFSC) Banking Unit (IBU) as specified in circular no. RBI/2014-15/533.DBR.IBD.BC.14570/23.13.004/2014-15 dated April 1, 2015, as amended from time to time.
(vii) NDDCs involving INR offered to resident users shall be cash-settled in INR. Such derivatives offered to non-resident users shall be cash-settled in INR or any foreign currency.
(viii) Foreign exchange derivative contracts not involving INR and foreign currency interest rate derivative contracts offered to resident users for purposes other than hedging shall be cash-settled in INR. Such derivatives offered to non-resident users for purposes other than hedging shall be cash-settled in INR or any foreign currency.
2.3 Purpose
(i) Authorised Dealers may offer foreign exchange cash, tom and spot contracts, involving INR or otherwise, to users for permissible current or capital account transactions.
(ii) Authorised Dealers may offer deliverable foreign exchange derivative contracts involving INR to users for the purpose of hedging.
(iii) Authorised Dealer Category-I banks with an operating IFSC Banking Unit may offer NDDCs involving INR to resident users for the purpose of hedging and to non-resident users without any restriction in terms of purpose.
(iv) Authorised Dealers may offer deliverable and non-deliverable foreign exchange derivative contracts not involving INR to users without any restriction in terms of purpose.
(v) Authorised Dealers may offer foreign currency interest rate derivatives to users without any restriction in terms of purpose.
(vi) Authorised Dealers may offer currency swaps to resident users, other than individuals, for the purpose of converting their INR liability into a foreign currency liability. In case of resident retail users, such conversion shall be subject to the existence of a natural hedge.
2.4 Other Directions
(i) While offering a foreign exchange derivative contract involving INR to a user, other than NDDCs involving INR offered to non-resident users, and during the life of such contracts, Authorised Dealers shall ensure that:
(ii) Authorised Dealers shall allow users to freely cancel and rebook derivative contracts. However, net gains (gains over and above losses, if any) on derivative contracts booked to hedge an anticipated exposure shall be passed on to the eligible user only at the time of the cash flow of the anticipated transaction. In case of part delivery, net gains shall be transferred on a pro-rata basis.
(iii) Authorised Dealers may, in exceptional cases, pass on the net gains, if any, on derivative contracts booked to hedge an anticipated exposure whose underlying cash flow has not materialised, provided the Authorised Dealer is satisfied that the absence of cash flow is on account of factors which are beyond the control of the user. Such instances along with specific justification, shall be kept on record by the Authorised Dealer.
(iv) Authorised Dealers may call for such documents from users as they deem necessary for complying with the requirements of these Directions.
(v) While offering foreign exchange derivative / foreign currency interest rate derivative to the retail user, Authorised Dealers shall provide the mid-market mark / bid and ask price of the derivative before entering into the contract and the same must also be included in the deal confirmation / term sheet.
(vi) While offering a foreign exchange derivative contract involving INR to a non-resident (or its central treasury / group entity, where applicable), Authorised Dealers may deal with a non-resident user either directly or on a back-to-back basis through overseas entities (including overseas branches, IFSC Banking Units, wholly owned subsidiaries and joint ventures of Authorised Dealers) subject to the following conditions:
(vii) Authorised Dealer shall ensure that in the case of non-resident users, all payables incidental to the foreign exchange transactions are met by the user out of repatriable funds and / or inward remittance through normal banking channels.
(viii) Market-makers in OTC markets shall comply with the Master Direction – Reserve Bank of India (Market-makers in OTC Derivatives) Directions, 2021 issued vide RBI Circular No. FMRD.FMD.07/02.03.247/2021-22 dated September 16, 2021, as amended from time to time.
(ix) Existing contracts booked under the provisions of the earlier Directions may be continued till the date of their expiry.
3. Directions for exchange traded currency derivatives
3.1 Recognised Stock Exchanges and Recognised Clearing Corporations shall not deal in or otherwise undertake the business relating to foreign exchange derivatives unless they hold an authorization issued by the Reserve Bank of India under Section 10(1) of the Foreign Exchange Management Act, 1999.
3.2 Products
(i) Recognized Stock Exchanges may offer the following foreign exchange derivative contracts, involving INR or otherwise, to persons resident in India and persons resident outside India:
(ii) Permitted currency pairs: USD-INR, EUR-INR, GBP-INR, JPY-INR, EUR-USD, GBP-USD and USD-JPY.
(iii) The underlying for the foreign exchange option shall be the spot rate of the corresponding currency pair.
(iv) Tenor: Up to 12 months.
3.3 Purpose
(i) Recognized Stock Exchanges may offer foreign exchange derivative contracts involving INR to users for the purpose of hedging contracted exposure.
(ii) Recognized Stock Exchanges may offer foreign exchange derivative contracts not involving INR without any restriction in terms of purpose.
3.4 Other Directions
(i) For exchange traded foreign exchange derivative contracts involving INR, Recognized Stock Exchange shall ensure that:
(a) The user is allowed to take positions (long or short), without having to establish existence of underlying exposure, up to a single limit of USD 100 million equivalent across all currency pairs involving INR, put together, and combined across all Recognized Stock Exchanges;
Note: Recognized Stock Exchanges shall inform users that while they are not required to establish the existence of underlying exposure, they must ensure the existence of a valid underlying contracted exposure which has been not hedged using any other derivative contract and should be in a position to establish the same, if required.
(b) Recognized Stock Exchanges shall provide a facility to users intending to take position beyond USD 100 million (or equivalent) in contracts involving INR, in all exchanges put together, to designate an Authorised Dealer / Custodian for the purpose of monitoring transactions of the user to ensure that:
(c) For users taking positions beyond the aforesaid limit of USD 100 million, Recognized Stock Exchanges shall provide information on day-end open positions as well as intra-day highest position of the users to the designated Authorised Dealer / Custodian.
(d) Recognized Stock Exchanges shall ensure that the participants on exchanges are made adequately aware of the risks associated with exchange traded currency derivatives.
(ii) Price / premium of exchange traded foreign exchange derivative contracts involving INR shall be quoted in INR. Price / premium of EUR-USD and GBP-USD cross currency contracts shall be quoted in USD and USD-JPY contract shall be quoted in JPY.
(iii) Exchange traded foreign exchange derivative contracts, involving INR or otherwise, shall be cash settled in INR. The settlement price for exchange traded foreign exchange derivative contracts involving INR shall be the corresponding Financial Benchmarks India Pvt. Ltd. (FBIL) Reference Rate on the last trading day of the contract. For permitted exchange traded foreign exchange derivative contracts involving INR where FBIL Reference Rates are not available and for other currency pairs, the mechanism for arriving at the settlement price shall be decided by the Recognised Stock Exchange with the approval of SEBI.
(iv) Premium for foreign exchange option shall be payable in INR based on the FBIL Reference Rates. If the corresponding FBIL Reference Rate is not available, the mechanism for arriving at the payable amount shall be decided by the Recognized Stock Exchange with the approval of SEBI.
(v) The trading and clearing membership of the foreign exchange derivative segment of the Recognized Stock Exchange / Recognised Clearing Corporation shall be separate from the membership of other segments and shall be subject to the regulations / directions issued by the SEBI.
(vi) Recognized Stock Exchanges and Authorised Dealers may call for such documents from users as they deem necessary for complying with the requirements of these Directions.
(vii) Recognised Stock Exchanges and recognised Clearing Corporations authorised under Section 10(1) of the Foreign Exchange Management Act, 1999 shall submit to the Reserve Bank of India such returns, documents and other information as may be required, in the format and time frame specified, if any. Also, they shall report any major development relating to its functioning of the permitted products such as market abuse, market disruption, adverse finding relating its functioning or regulatory action, etc., at the earliest to the Chief General Manager, Financial Markets Regulation Department, Reserve Bank of India (via email).
(viii) The Reserve Bank may from time to time modify the eligibility criteria for the participants, modify participant-wise position limits, prescribe margins and / or impose specific margins for identified participants, fix or modify any other prudential limits, or take such other actions as deemed necessary in public interest, in the interest of financial stability and orderly development and maintenance of foreign exchange market in India.
[Removed]2 SECTION III Facilities for Authorised Dealers 1. Management of Assets-Liabilities Users – Authorised Dealers Purpose - Hedging of interest rate and currency risks of foreign exchange asset-liability portfolio Products - Interest Rate Swap, Interest Rate Cap/Collar, Currency Swap, Forward Rate Agreement. Authorised Dealers may also purchase call or put options to hedge their cross currency proprietary trading positions. Operational Guidelines, Terms and Conditions The use of these instruments is subject to the following conditions:
2. Hedging of Gold Prices Users –
Purpose – To hedge price risk of gold Products - Exchange-traded and over-the-counter hedging products available overseas. Operational Guidelines, Terms and Conditions
3. Hedging of Capital Users – Foreign banks operating in India Product – Forward foreign exchange contracts Operational Guidelines, Terms and Conditions a) Tier I capital -
b) Tier II capital -
4. [Removed]3
5. [Removed]4
6. Participation of Authorised Dealers in the exchange traded currency derivative (ETCD) market (a) Authorised Dealers may undertake trading in all permitted exchange traded currency derivatives within their Net Open Position Limit (NOPL) subject to limits stipulated by the exchanges (for the purpose of risk management and preserving market integrity) provided that any synthetic USD-INR position created using a combination of exchange traded FCY- INR and cross-currency contracts shall have to be within the position limit prescribed by the exchange for the USD-INR contract. (b) Authorised Dealers may net / offset their positions in the ETCD market against the positions in the OTC derivatives markets. Keeping in view the volatility in the foreign exchange market, Reserve Bank may however stipulate a separate sub-limit of the NOPL (as a percentage thereof) exclusively for the OTC market as and when required.
5(c) While participating in the ETCD market, AD Category-I banks shall comply with the Master Direction – Reserve Bank of India (Financial Services provided by Banks) Directions, 2016 dated May 26, 2016, as amended from time to time and Standalone Primary Dealers authorised as Authorised Dealer Category-III shall comply with the Master Direction – Standalone Primary Dealers (Reserve Bank) Directions, 2016 dated August 23, 2016, as amended from time to time. PART B ACCOUNTS OF NON-RESIDENT BANKS 1. General (i) Credit to the account of a non-resident bank is a permitted method of payment to non-residents and is, therefore, subject to the regulations applicable to transfers in foreign currency. (ii) Debit to the account of a non-resident bank is in effect an inward remittance in foreign currency. 2. Rupee Accounts of Non-Resident Banks AD Category-I banks may open/close Rupee accounts (non-interest bearing) in the names of their overseas branches or correspondents without prior reference to the Reserve Bank. Opening of Rupee accounts in the names of branches of Pakistani banks operating outside Pakistan requires specific approval of the Reserve Bank. 3. Funding of Accounts of Non-resident Banks (i) AD Category-I banks may freely purchase foreign currency from their overseas correspondents/branches at on-going market rates to lay down funds in their accounts for meeting their bonafide needs in India. (ii) Transactions in the accounts should be closely monitored to ensure that overseas banks do not take a speculative view on the Rupee. Any such instances should be notified to the Reserve Bank. NOTE: Forward purchase or sale of foreign currencies against Rupees for funding is prohibited. Offer of two-way quotes in Rupees to non-resident banks is also prohibited. 4. Transfers from other Accounts Transfer of funds between the accounts of the same bank or different banks is freely permitted. 5. Conversion of Rupees into Foreign Currencies Balances held in Rupee accounts of non-resident banks may be freely converted into foreign currency. All such transactions should be recorded in Form A2 and the corresponding debit to the account should be in form A3 under the relevant Returns. 6. Responsibilities of Paying and Receiving Banks In the case of credit to accounts the paying banker should ensure that all regulatory requirements are met and are correctly furnished in form A1/A2 as the case may be. 7. Refund of Rupee Remittances Requests for cancellation or refund of inward remittances may be complied with without reference to Reserve Bank after satisfying themselves that the refunds are not being made in cover of transactions of compensatory nature. 8. Overdrafts / Loans to Overseas Branches/ Correspondents (i) AD Category-I banks may permit their overseas branches/ correspondents temporary overdrawals not exceeding Rs.500 lakhs in aggregate, for meeting normal business requirements. This limit applies to the amount outstanding against all overseas branches and correspondents in the books of all the branches of the authorised AD Category-I bank in India. This facility should not be used to postpone funding of accounts. If overdrafts in excess of the above limit are not adjusted within five days a report should be submitted to the Chief General Manager, Financial Markets Regulation Department, Reserve Bank of India, Central Office, 9th Floor, Central Office Building, Shahid Bhagat Singh Road, Fort, Mumbai – 400 001 within 15 days from the close of the month, stating the reasons thereof. Such a report is not necessary if arrangements exist for value dating. (ii) AD Category-I bank wishing to extend any other credit facility in excess of (i) above to overseas banks should seek prior approval from the Chief General Manager, Financial Markets Regulation Department, Reserve Bank of India, Central Office. 9. Rupee Accounts of Exchange Houses Opening of Rupee accounts in the names of Exchange Houses for facilitating private remittances into India requires approval of the Reserve Bank. Remittances through Exchange Houses for financing trade transactions are permitted upto Rs.15,00,000 per transaction6. PART C INTER-BANK FOREIGN EXCHANGE DEALINGS 1. General The Board of Directors of Authorised Dealers should frame an appropriate policy and fix suitable limits for various Treasury functions. 2. Position and Gaps The net overnight open exchange position (Annex-I) and the aggregate gap limits should be communicated to the Reserve Bank soon after the approval of the Board / Management Committee. 3. Inter-bank Transactions Subject to compliance with the provisions of paragraphs 1 and 2, Authorised Dealers may freely undertake foreign exchange transactions as under: a) With Authorised Dealers in India: (i) Buying/Selling/Swapping foreign currency against Rupees or another foreign currency. (ii) Placing/Accepting deposits and Borrowing/Lending in foreign currency. b) With banks overseas and Off-shore Banking Units in Special Economic Zones (i) Buying/Selling/Swapping foreign currency against another foreign currency to cover client transactions or for adjustment of own position, (ii) Initiating trading positions in the overseas markets. NOTE : A. Funding of accounts of Non-resident banks - please refer to paragraph 3 of Part B. B. Form A2 need not be completed for sales in the inter-bank market, but all such transactions shall be reported to Reserve Bank in R Returns.
73A. Transaction in Non-deliverable derivative contracts (NDDC)
Authorised Dealer Category-I banks having an IFSC Banking Unit (IBU) (as specified in circular no.RBI/2014-15/533.DBR.IBD.BC.14570/23.13.004/2014-15 dated April 1, 2015 (as amended from time to time)) may transact in Non-deliverable derivative contracts (NDDCs) with other AD Category-I banks having IBUs and banks overseas. Banks can undertake such transactions through their IBUs or through their branches in India or through their foreign branches (in case of foreign banks operating in India, through any branch of the parent bank). Such transactions can be cash-settled in INR or any foreign currency.
4. Foreign Currency Accounts/ Investments in Overseas Markets (i) Inflows into foreign currency accounts arise primarily from client-related transactions, swap deals, deposits, borrowings, etc. Authorised Dealers may maintain balances in foreign currencies up to the levels approved by the Board. They are free to manage the surplus in these accounts through overnight placement and investments with their overseas branches/correspondents subject to adherence to the gap limits approved by the Reserve Bank. (ii) Authorised Dealers are free to undertake investments in overseas markets up to the limits approved by their Board. Such investments may be made in overseas money market instruments and/or debt instruments issued by a foreign state with a residual maturity of less than one year and rated at least as AA (-) by Standard & Poor / FITCH IBCA or Aa3 by Moody's. For the purpose of investments in debt instruments other than the money market instruments of any foreign state, Authorised Dealers' Board may lay down country ratings and country - wise limits separately wherever necessary. NOTE: For the purpose of this clause, 'money market instrument' would include any debt instrument whose life to maturity does not exceed one year as on the date of purchase. (iii) AD Category-I banks may also invest the un-deployed FCNR (B) funds in overseas markets in long-term fixed income securities subject to the condition that the maturity of the securities invested in do not exceed the maturity of the underlying FCNR (B) deposits. (iv) Foreign currency funds representing surpluses in the nostro accounts may be utilised by Authorised Dealer Category-I banks for: a) making loans to resident constituents for meeting their foreign exchange requirements or for the Rupee working capital/capital expenditure needs of exporters/ corporates who have a natural hedge or a risk management policy for managing the exchange risk subject to the prudential/interest-rate norms, credit discipline and credit monitoring guidelines in force. b) extending credit facilities to Indian wholly owned subsidiaries/ joint ventures abroad in which at least 51 per cent equity is held by a resident company, subject to the guidelines issued by Reserve Bank (Department of Regulation). (v) Authorised Dealers may write-off/transfer to unclaimed balances account, un-reconciled debit/credit entries as per instructions issued by Department of Regulation, from time to time.
5. Loans/Overdrafts by Authorised Dealer Category-I banks a) All categories of overseas foreign currency borrowings of AD Category-I banks, (except for borrowings at (c) below), including existing External Commercial Borrowings and loans/overdrafts from their Head Office, overseas branches and correspondents outside India, International / Multilateral Financial Institutions [see (e) below] or any other entity as permitted by Reserve Bank of India and overdrafts in nostro accounts (not adjusted within five days), shall not exceed 100 per cent of their unimpaired Tier I capital or USD 10 million (or its equivalent), whichever is higher subject to conditions laid down in (f) below. The aforesaid limit applies to the aggregate amount availed of by all the offices and branches in India from all their branches/correspondents abroad and also includes overseas borrowings in gold for funding domestic gold loans (cf. DBOD circular No.IBD.BC.33/23.67.001/2005-06 dated September 5, 2005). If drawals in excess of the above limit are not adjusted within five days, a report, should be submitted to the Chief General Manager, Financial Markets Regulation Department, Reserve Bank of India, Central Office, 9th Floor, Central Office Building, Shahid Bhagat Singh Road, Fort, Mumbai – 400 001, within 15 days from the close of the month in which the limit was exceeded. Such a report is not necessary if arrangements exist for value dating. b) The funds so raised may be used for purposes other than lending in foreign currency to constituents in India and repaid without reference to the Reserve Bank. As an exception to this rule, AD Category-I banks are permitted to use borrowed funds as also foreign currency funds received through swaps for granting foreign currency loans for export credit in terms of IECD Circular No 12/04.02.02/2002-03 dated January 31, 2003. Any fresh borrowing above this limit shall be made only with the prior approval of the Reserve Bank. Applications for fresh ECBs should be made as per the current ECB Policy. c) The following borrowings would continue to be outside the limit of 100 per cent of unimpaired Tier I capital or USD 10 million (or its equivalent), whichever is higher:
d) Interest on loans/overdrafts may be remitted (net of taxes) without the prior approval of Reserve Bank. e) 8AD Category-I banks may borrow only from International / Multilateral Financial Institutions in which Government of India is a shareholding member or which have been established by more than one government or have shareholding by more than one government and other international organizations. f) The borrowings beyond 50 per cent of unimpaired Tier I capital of AD Category-I banks will be subject to the following conditions:
95A. Overseas foreign currency borrowing by Standalone Primary Dealers authorised as Authorised Dealer Category-III
a) Standalone Primary Dealers may borrow in foreign currency from their parent or correspondent outside India or any other entity as permitted by Reserve Bank of India and avail overdraft in nostro accounts (not adjusted within five days), only for operational reasons. Such borrowings shall be within the limit for foreign currency borrowings prescribed in the Master Direction – Standalone Primary Dealers (Reserve Bank) Directions, 2016 dated August 23, 2016, as amended from time to time.
b) If drawals in excess of the above limit are not adjusted within five days, a report, should be submitted to the Chief General Manager, Financial Markets Regulation Department, Reserve Bank of India, Central Office, 9th Floor, Central Office Building, Shahid Bhagat Singh Road, Fort, Mumbai – 400 001, within 15 days from the close of the month in which the limit was exceeded. Such a report is not necessary if arrangements exist for value dating. 106. Customer and inter-bank transactions beyond onshore market hours Authorised dealers may undertake customer (persons resident in India and persons resident outside India) and inter-bank transactions beyond onshore market hours. Transactions with persons resident outside India, through their foreign branches and subsidiaries may also be undertaken beyond onshore market hours. [Removed]11 PART E A. REPORTS TO THE RESERVE BANK
i) The Head/Principal Office of each Authorised Dealer should submit daily statements of Foreign Exchange Turnover in Form FTD and Gaps, Position and Cash Balances in Form GPB through the Centralised Information Management System (CIMS) as per the format given in Annex-II by the following working day. ii) [Removed]12 iii) [Removed]13
iv) Authorised Dealers should forward details of exposures in foreign exchange as at the end of every quarter as per the format given in Annex-V through CIMS by the 30th of the month following the end of the quarter. Please note that details of exposures of all corporate clients who meet the prescribed criteria have to be included in the report. Authorised Dealers should submit this report based on their own books and not based on corporate returns.
v) Authorised Dealers should forward details of option transactions (FCY-INR) undertaken on a weekly basis as per the format given in Annex VIII through CIMS / email by the first working day of the following week.
vi) Authorised Dealers have to report their total outstanding foreign currency borrowings under all categories as on the last working day of every month as per the format given in Annex-IX through CIMS by 10th of the following month. vii) [Removed]14 viii) The Head/Principal Office of each Authorised Dealer should submit a statement in form BAL giving details of their holdings of all foreign currencies on fortnightly basis through the web portal at https://bop.rbi.org.in as per the format given in Annex III15 within seven calendar days from the close of the reporting period to which it relates. ix) [Removed]16
x) The Head/Principal Office of each AD Category-I banks should furnish an up-to-date list of all its offices/branches, which are maintaining Rupee accounts of non-resident banks as at the end of December every year giving their code numbers allotted by Reserve Bank through CIMS / email by 15th January of the following year. The offices/branches should be classified according to area of jurisdiction of Reserve Bank Offices within which they are situated. xi) [Removed]17 xii) [Removed]18
xiii) Authorised Dealers should report on a quarterly basis, doubtful transactions involving frequent cancellation of hedge transactions and / or the underlying trade transactions by non-residents under the scheme as per the format indicated in the Annex XX through CIMS by the 10th of the month following the end of the quarter.
19B. REPORTING TO THE TRADE REPOSITORY
(i) Authorised Dealers should report all OTC foreign exchange derivative contracts and foreign currency interest rate derivative contracts, undertaken by them directly or through their overseas entities20 (including overseas branches, IFSC Banking Units, wholly owned subsidiaries and joint ventures of Authorised Dealers), to the Trade Repository (TR) of Clearing Corporation of India Ltd. (CCIL) as per the following timelines:
(a) Inter-bank foreign exchange derivative contracts involving INR (except currency swaps and structured derivatives) should be reported in hourly batches within 30 minutes from completion of the hour. Such contracts executed 30 minutes prior to closure of CCIL's reporting platform for the day and subsequent to closure of CCIL's reporting platform for the day should be reported by 10 a.m of the following business day;
(b) Inter-bank foreign exchange derivative contracts not involving INR (except currency swaps and structured derivatives) executed up to 5 p.m.on any given day should be reported by 05:30 p.m of that day. Such contracts executed after 5 p.m should be reported by 10 a.m of the following business day;
(c) Inter-bank currency swaps, structured derivatives and foreign currency interest rate derivative contracts executed upto 5 p.m.on any given day should be reported before closure of CCIL's reporting platform for the day. Such contracts executed after 5 p.m should be reported by 10 a.m of the following business day; and
(d) Foreign exchange derivative contracts and foreign currency interest rate derivative contracts executed with clients should be reported before 12 noon of the following business day.
Note: For the purpose of (a) (b) and (c), structured derivative shall have the meaning as assigned in the Master Direction – Reserve Bank of India (Market-makers in OTC Derivatives) Directions, 2021 dated September 16, 2021, as amended from time to time.
(ii) Under the 'back-to-back' arrangement, trade details, including particulars of the non–resident client should be reported to the TR.
(iii) There shall be no requirement of matching transactions with overseas counterparties and client transactions in the TR as the overseas counterparties and clients are not required to report/confirm the transaction details. Authorised Dealers shall be responsible for ensuring the accuracy in respect of transactions reported.
(iv) Authorised Dealers should ensure that outstanding balances between their books and the TR are reconciled on an ongoing basis.
(v) The reporting formats shall be as indicated by CCIL with the prior approval of the Reserve Bank.
[See Part C, Paragraph 2] A. Guidelines for Foreign Exchange Exposure Limits of Authorised Dealers The Foreign Exchange Exposure Limits of Authorised Dealers would be dual in nature.
For banks incorporated in India, the exposure limits fixed by the Board should be the aggregate for all branches including their overseas branches and Off-shore Banking Units. For foreign banks, the limits will cover only their branches in India. i. Net Overnight Open Position Limit (NOOPL) for calculation of capital charge on forex risk
NOOPL may be fixed by the boards of the respective Authorised Dealers and communicated to the Reserve Bank immediately through CIMS / email. However, such limits should not exceed 25 percent of the total capital (Tier I and Tier II capital) of the Authorised Dealer. The Net Open position may be calculated as per the method given below: 1. Calculation of the Net Open Position in a Single Currency The open position must first be measured separately for each foreign currency. The open position in a currency is the sum of (a) the net spot position, (b) the net forward position and (c) the net options position. a) Net Spot Position The net spot position is the difference between foreign currency assets and the liabilities in the balance sheet. This should include all accrued income/expenses. b) Net Forward Position This represents the net of all amounts to be received less all amounts to be paid in the future as a result of foreign exchange transactions which have been concluded. These transactions, which are recorded as off-balance sheet items in the Authorised Dealers' books, would include:
c) Net Options Position The options position is the "delta-equivalent" spot currency position as reflected in the authorised dealer's options risk management system, and includes any delta hedges in place which have not already been included under 1(a) or 1(b) (i) and (ii) above. 2. Calculation of the Overall Net Open Position This involves measurement of risks inherent in Authorised Dealers' mix of long and short position in different currencies. It has been decided to adopt the "shorthand method" which is accepted internationally for arriving at the overall net open position. Authorised Dealers may, therefore, calculate the overall net open position as follows: i. Calculate the net open position in each currency (paragraph 1 above). ii. Calculate the net open position in gold. iii. Convert the net position in various currencies and gold into Rupees in terms of existing RBI / FEDAI Guidelines. All derivative transactions including forward exchange contracts should be reported on the basis of Present Value (PV) adjustment. iv. Arrive at the sum of all the net short positions. v. Arrive at the sum of all the net long positions. Overall net foreign exchange position is the higher of (iv) or (v). The overall net foreign exchange position arrived at as above must be kept within the limit approved by the Authorised Dealers' Board. Note: Authorised Dealers should report all derivative transactions including forward exchange contracts on the basis of PV adjustment for the purpose of calculation of the net open position. Authorised Dealers may select their own yield curve for the purpose of PV adjustments. Authorised Dealers however should have an internal policy approved by their ALCO regarding the yield curve/(s) to be used and apply it on a consistent basis. 3. Offshore exposures For banks with overseas presence, the offshore exposures should be calculated on a standalone basis as per the above method and should not be netted with onshore exposures. The aggregate limit (on-shore + off-shore) may be termed Net Overnight open Position (NOOP) and will be subjected to capital charge. Accumulated surplus of foreign branches need not be reckoned for calculation of open position. An illustrative example is as follows: If a bank has, let us say three foreign branches and the three branches have open position as below- Branch A: + Rs 15 crores Branch B: + Rs 5 crores Branch C: - Rs 12 crores The open position for the overseas branches taken together would be Rs 20 crores. 4. Capital Requirement As prescribed by the Reserve Bank from time to time. 5. Other Guidelines i. ALCO / Internal Audit Committee of the Authorised Dealers should monitor the utilization of and adherence to the limits. ii. Authorised Dealers should also have a system in place to demonstrate, whenever required, the various components of the NOOP as prescribed in the guidelines for verification by Reserve Bank. iii. Transactions undertaken by Authorised Dealers till the end of business day may be computed for calculation of Foreign Exchange Exposure Limits. The transactions undertaken after the end of business day may be taken into the positions for the next day. The end of day time may be approved by the Authorised Dealers' Board. ii. Limit for positions involving Rupee as one of the currencies (NOP-INR) for exchange rate management
B. Aggregate Gap Limits (AGL)
i. AGL may be fixed by the boards of the respective Authorised Dealers and communicated to the Reserve Bank immediately through CIMS / email. However, such limits should not exceed 6 times the total capital (Tier I and Tier II capital) of the Authorised Dealer. ii. However, Authorised Dealers which have instituted superior measures such as tenor wise PV01 limits and VaR to aggregate foreign exchange gap risks are allowed to fix their own PV01 and VaR limits based on their capital, risk bearing capacity etc. in place of AGL and communicate the same to the Reserve Bank. The procedure and calculation of the limit should be clearly documented as an internal policy and strictly adhered to. [see Part E, paragraph (i)] Reporting of Forex Turnover Data - FTD and GPB The guidelines and formats for preparation of the FTD and GPB reports are given below. Authorised Dealers may ensure that the reports are properly compiled on the basis of these guidelines: The data for a particular date has to reach us by the close of business of the following working day. FTD 1. SPOT - Cash and tom transactions are to be included under ‘Spot’ transactions. 2. SWAP - Only foreign exchange swaps between Authorised Dealers should be reported under swap transactions. Long term swaps (both cross currency and foreign currency-Rupee swaps) should not be included in this report. Swap transactions should be reported only once and should not be included under either the 'spot' or 'forward' transactions. Buy/Sell swaps should be included in the 'Purchase' side under 'Swaps' while Sell/buy swaps should figure on the 'Sale' side. 3. Cancellation of forwards - The amount required to be reported under cancellation of forward contracts against purchases from merchants should be the aggregate of cancelled forward merchant sale contracts by Authorised Dealers (adding to the supply in the market). On the sale side of cancelled forward contracts, aggregate of the cancelled forward purchase contracts should be indicated (adding to the demand in the market). 4 ‘FCY/FCY’ transactions - Both the legs of the transactions should be reported in the respective columns. For example in a EUR/USD purchase contract, the EUR amount should be included in the purchase side while the USD amount should be included in the sale side. 5. Transactions with RBI should be included in inter-bank transactions. Transactions with financial institutions other than entities authorised to deal in foreign exchange should be included under merchant transactions. GPB 1. Foreign Currency Balances - Cash balances and investments in all foreign currencies should be converted into US dollars and reported under this head. 2. Net open exchange position- This should indicate the overall overnight net open exchange position of the Authorised Dealer in Rs. Crore. The net overnight open position should be calculated on the basis of the instructions given in Annex I. 3. Of the above FCY/INR- The amount to be reported is the position against the Rupee- i.e. the net overnight open exchange position less cross currency position, if any. Formats of FTD and GPB Statements FTD Statement showing daily turnover of foreign exchange dated………
GPB Statement showing gaps, position and cash balances as on………..
FOREIGN CURRENCY MATURITY MISMATCH (IN USD MILLION)
[Removed]21
[see Part E , paragraph (iv)]
Notes for Authorised Dealers:
a. Data to be submitted based on AD's books and not based on user's return.
b. L/Cs established/bills under LCs to be retired/ outstanding import collection bills to be included.
c. Export Bills purchased /discounted/negotiated not to be included.
d. Short term Finance to include Trade Credit (Buyers credit/ supplier's credit) approved by the AD /PCFC.
e. Non-Trade exposures to include ECBs, FCCB cases handled by the AD/ FCNR (B) loans etc.
f. All hedges with rupee as one of the legs shall be reported.
g. In the case of option structures, the trade with highest notional amount shall be reported.
h. User wise data where the exposures or the hedges (based on contracted or anticipated exposure) undertaken are above USD 25 million or equivalent shall be reported.
j. In Part C, INR/FCY currency swaps based on Rupee Liability above USD 25 million equivalent shall be reported.
[Removed]23
[Removed]24
[see Part E , paragraph (v)] FCY/Rupee Option transactions For the week ended__________________ A. Option Transaction Report
II. Option Positions Report
Total Net Open Options Position (INR): The total net open options position can be arrived using the methodology prescribed in A. P. (DIR Series) Circular No. 92 dated April 4, 2003. III. Change in Portfolio Delta Report Change in USD-INR delta for a 0.25% change in spot ($-appreciation) in INR terms = Change in USD-INR delta for a 0.25% change in spot ($-depreciation) in INR terms = Similarly, Change in delta for a 0.25% change in spot (FCY appreciation & depreciation separately) in INR terms for other currency pairs, such as EUR-INR, JPY-INR etc. IV. Strike Concentration Report
This report should be prepared for a range of 150 paise around current spot level. Cumulative positions to be given. All amounts in USD million. When the Authorised Dealer owns an option, the amount should be shown as positive. When the bank has sold an option, the amount should be shown as negative. Reports may be prepared as of every Friday and sent by the following Monday.
[See Part C, paragraph 5 (a) and paragraph 5A] Overseas foreign currency borrowings –Report as on ……….. Amount (in equivalent USD* Million)
[Removed]26
[Removed]27 [Removed]28
[Removed]29
[Removed]30
[Removed]31
[Removed]32 [Removed]33
[Removed]34
[Removed]35
Reporting of suspicious transactions undertaken by non-resident importer / exporter – for the quarter ended ____________ Name of the Authorised Dealer–
[Removed]36
Foreign Exchange Derivative Contracts and Foreign Currency Interest Rate Derivative Contracts: Definitions
In these Directions, unless the context otherwise requires:
(a) 'Currency swap' means an OTC foreign exchange derivative contract which commits two counterparties to exchange streams of interest payments and/or principal amounts in different currencies on specified dates over the duration of the swap at a pre-agreed exchange rate.
(b) 'Foreign exchange call option (European)' means an OTC / exchange traded foreign exchange derivative contract that gives the buyer the right, but not the obligation, to buy an agreed amount of a certain currency with another currency at a specified exchange rate on a specified date in the future.
(c) 'Foreign exchange call spread' means an OTC foreign exchange derivative contract involving simultaneous purchase and sale of equal number of OTC foreign exchange call options (European) of same expiry and different strike price.
(d) 'Covered foreign exchange call option' means a written OTC foreign exchange call option where the writer of the option has a long position in the asset underlying the option.
(e) 'Covered foreign exchange put option' means a written OTC foreign exchange put option where the writer of the option has a short position in the asset underlying the option.
(f) 'Foreign exchange forward' means an OTC foreign exchange derivative contract involving the exchange of two currencies on a specified date in the future (more than two business days later) at a rate agreed on the date of the contract.
(g) 'Foreign exchange future' means an exchange traded foreign exchange derivative contract involving the exchange of two currencies on a specified date in the future (more than two business days later) at a rate agreed on the date of the contract, but does not include foreign exchange forward.
(h) 'Foreign exchange put option (European)' means an OTC / exchange traded foreign exchange derivative contract that gives the buyer the right, but not the obligation, to sell an agreed amount of a certain currency for another currency at a specified exchange rate on a specified date in the future.
(i) 'Foreign exchange put spread' means an OTC foreign exchange derivative contract involving simultaneous purchase and sale of equal number of OTC foreign exchange put options (European) of same expiry and different strike price.
(j) 'Foreign exchange swap' means an OTC foreign exchange derivative contract involving the actual exchange of two currencies (principal amount only) on a specified date (the near leg) and a reverse exchange of the same two currencies at a date further in the future (the far leg), at rates agreed at the time of the contract.
(k) 'Forward rate agreement' means a cash-settled OTC foreign currency interest rate derivative contract between two counterparties, in which a buyer will pay or receive, on the settlement date, the difference between a pre-determined fixed rate (FRA rate) and a reference interest rate, applied on a notional principal amount, for a specified forward period.
(l) 'Interest rate call option (European)' means an OTC foreign currency interest rate derivative contract that gives the buyer the right, but not the obligation, to buy an interest rate instrument or receive an interest rate on a notional principal at a pre-determined price / rate on a specified date in the future.
(m) 'Interest rate cap' means a series of interest rate call options (European) (called caplets) in which the buyer of the option receives a payment at the end of each period when the underlying interest rate is above a rate agreed in advance.
(n) 'Interest rate collar' means an OTC foreign currency interest derivative contract where a market participant simultaneously purchases an interest rate cap and sells an interest rate floor on the same interest rate for the same maturity and notional principal amount.
(o) 'Interest rate floor' means a series of interest rate put options (European) in which the buyer of the option receives a payment at the end of each period when the underlying interest rate is below a rate agreed in advance.
(p) 'Interest rate put option (European)' means an OTC foreign currency interest rate derivative contract that gives the buyer the right, but not the obligation, to sell an interest rate instrument or pay an interest rate on a notional principal at a pre-determined price/rate on a specified date in the future.
(q) 'Interest rate swap' means an OTC foreign currency interest derivative contract in which two counterparties agree to exchange one stream of future interest payments for another, applied on a notional principal amount, over a specified period.
(r) 'Reverse interest rate collar' means an OTC foreign currency interest rate derivative contract which involves simultaneous purchase of an interest rate floor and sale of an interest rate cap on the same interest rate for the same maturity and notional principal amount. List of Notifications which have been consolidated in the Master Direction - Risk Management and Inter-Bank Dealings List of circulars which have been consolidated in the Master Direction - Risk Management and Inter-Bank Dealings These circulars should be read in conjunction with FEMA, 1999 and the Rules/Regulations/ Directions/Orders/Notifications issued thereunder.
List of notifications superseded.
(i) Currency Futures (Reserve Bank) Directions, 2008 (Notification No. FED.1/DG(SG)-2008 dated August 06, 2008) issued under RBIA, 1934;
(ii) Currency Futures (Reserve Bank) (Amendment) Directions, 2010 (Notification No. FED.2/ED(HRK)-2010 dated January 19, 2010) issued under RBIA, 1934;
(iii) Exchange Traded Currency Options (Reserve Bank) Directions, 2010 Notification No. FED.01 / ED (HRK) - 2010 dated July 30, 2010 issued under RBIA, 1934;
(iv) Currency Futures (Reserve Bank) (Amendment) Directions, 2014 (Notification No. FED.1/ED(GP)-2014 dated June 20, 2014);
(v) Exchange Traded Currency Options (Reserve Bank) (Amendment) Directions, 2014 (Notification No. FED.2/ED(GP)-2014 dated June 20, 2014);
(vi) Currency Futures (Reserve Bank) (Amendment) Directions, 2015 (Notification No. FMRD.1/ED(CS)-2015 dated December 10, 2015);
(vii) Exchange Traded Currency Options (Reserve Bank) (Amendment) Directions, 2015 (Notification No. FMRD.2/ ED (CS)-2015 dated December 10, 2015)
(viii) Currency Futures (Reserve Bank) (Amendment) Directions, 2017 (Notification No. FMRD.13/CGM(TRS)-2017 dated February 2, 2017);
(ix) Exchange Traded Currency Options (Reserve Bank) (Amendment) Directions, 2017 (Notification No. FMRD.14/CGM(TRS)-2017 dated February 2, 2017)
(x) Currency Futures (Reserve Bank) (Amendment) Directions, 2020 (Notification No. FMRD.FMD.03/ED(TRS)-2020 dated January 20, 2020); and
(xi) Exchange Traded Currency Options (Reserve Bank) (Amendment) Directions, 2020 (Notification No FMRD.FMD.04/ED(TRS)-2020 dated January 20, 2020).
List of circulars superseded.
These circulars should be read in conjunction with FEMA, 1999 and the Rules/Regulations/Directions/Orders/Notifications issued thereunder. 1 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 2 A. P. (DIR Series) Circular No. 102 May 21, 2015 3 A. P. (DIR Series) Circular No. 23 dated March 27, 2020 4 A.P. (DIR Series) Circular No. 112 dated June 25, 2015 5 A.P. (DIR Series) Circular No. 15 dated January 06, 2020 6 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 7 A. P. (DIR Series) Circular No. 3 dated August 10, 2017 8 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 9 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 10 A. P. (DIR Series) Circular No. 3 dated August 10, 2017 11 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 12 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 13 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 14 Capital refers to Tier I capital as per instructions issued by Reserve Bank of India (Department of Banking Operations and Development). 15 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 16 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 17 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 18 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 19 RBI/2017-18/138 A.P. (DIR Series) Circular No. 19 dated March 12, 2018 20 RBI/2017-18/138 A.P. (DIR Series) Circular No. 19 dated March 12, 2018 21 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 22 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 23 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 24 RBI/2017-18/138 A.P. (DIR Series) Circular No. 19 dated March 12, 2018 25 RBI/2017-18/138 A.P. (DIR Series) Circular No. 19 dated March 12, 2018 |
RBI/FMRD/2016-17/31 July 5, 2016 All Authorised Dealers - Category I Banks Madam / Sir, Master Direction - Risk Management and Inter-Bank Dealings In exercise of the powers conferred by clause (h) of sub-section (2) of section 47 of the Foreign Exchange Management Act (FEMA), 1999 (42 of 1999), the Reserve Bank has framed regulations to promote orderly development and maintenance of foreign exchange market in India through Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 Notification No. FEMA 25/RB-2000 dated May 3, 2000 and subsequent amendments thereto. Attention is also drawn to provisions in Notification No. FEMA 1/2000-RB, Regulation 4(2) of Notification No. FEMA 3/RB-2000 and subsequent amendments thereto. All of the above govern the Foreign Exchange Derivative Contracts, Overseas Commodity & Freight Hedging, Rupee Accounts of Non-Resident Banks and Inter-Bank Foreign Exchange Dealings etc. These Regulations are amended from time to time to incorporate the changes in the regulatory framework and published through amendment notifications. 2. Within the contours of the Regulations, the Reserve Bank issues directions to Authorised Persons under Section 11 of the Foreign Exchange Management Act (FEMA), 1999. These directions lay down the modalities as to how the foreign exchange business has to be conducted by the Authorised Persons with their customers / constituents with a view to implementing the regulations framed. 3. Instructions issued in respect of Foreign Exchange Derivative Contracts, Overseas Commodity & Freight Hedging, Rupee Accounts of Non-Resident Banks and Inter-Bank Foreign Exchange Dealings etc. have been compiled in this Master Direction. The list of underlying notifications / circulars which form the basis of this Master Direction is furnished in the Appendix. 4. It may be noted that, whenever necessary, Reserve Bank shall issue directions to Authorised Persons through A.P. (DIR Series) Circulars in regard to any change in the Regulations or the manner in which relative transactions are to be conducted by the Authorised Persons with their customers/ constituents. The Master Direction issued herewith shall be amended suitably simultaneously. Yours faithfully, (Dimple Bhandia) PART – A SECTION I Facilities for Persons Resident in India other than Authorised Dealers Category – I and for Persons Resident outside India 1. Definitions
2. Directions for Authorised Dealers A. General Directions i. Authorised Dealers shall classify a user as per the User Classification Framework provided at Annex XXI to this direction and shall comply with the guidelines applicable in each case. ii. Authorised Dealers shall offer derivative contracts to a user as per the user’s classification in para (i) above. While offering a derivative contract involving INR to a user, other than NDDCs offered to persons resident outside India, and during the life of such contracts, Authorised Dealers shall ensure that:
iii. Authorised Dealers shall allow users to freely cancel and rebook derivative contracts. However, net gains (gains over and above losses if any) on contracts booked to hedge an anticipated exposure shall be passed on to the eligible user only at the time of the cash flow of the anticipated transaction. In case of part delivery, net gains will be transferred on a pro-rata basis. iv. Authorised Dealers may, in exceptional cases, pass on the net gains on contracts booked to hedge an anticipated exposure whose underlying cash flow has not materialised, provided it is satisfied that the absence of cash flow is on account of factors which are beyond the control of the user. Such instances along with specific justification, shall be kept on record by the Authorised Dealer. v. All derivative contracts shall be subject to the Suitability and Appropriateness policy prescribed vide circular no.DBOD.No.BP.BC.86/21.04.157/2006-07 dated April 20, 2007 on Comprehensive Guidelines on Derivatives (as amended from time to time). vi. Authorised Dealers specifically designated by a user for the purpose of monitoring of transaction on exchanges shall ensure that all positions of the user in all contracts involving INR on all the exchanges put together, is backed by a contracted exposure to INR. vii. Authorised Dealers may call for such documents from the eligible users as they deem necessary for complying with the requirements of these directions. viii. Authorised Dealers, unless permitted by Reserve Bank to run books in contracts not involving INR, shall offer such contracts on a fully covered back-to-back basis. ix. Existing contracts booked under the provisions of the earlier direction may be continued till the date of their expiry. x. Banks in India having an Authorised Dealer Category-I license under FEMA, 1999, and operating International Financial Services Centre (IFSC) Banking Units (IBUs) (as specified in circular no.RBI/2014-15/533.DBR.IBD.BC.14570/23.13.004/2014-15 dated April 1, 2015 (as amended from time to time)), shall be eligible to offer NDDCs involving the Rupee or otherwise to persons resident outside India. Banks can undertake such transactions through their IBUs or through their branches in India or through their foreign branches (in case of foreign banks operating in India, through any branch of the parent bank). Such transactions can be cash-settled in INR or any foreign currency. xi. Banks in India having an Authorised Dealer Category-I license under FEMA, 1999, and operating IBUs shall also be eligible to offer NDDCs involving INR to resident non-retail users from their branches in India subject to compliance with the directions set out in para 2A(ii) above. Such transactions shall be cash-settled in INR. B. Specific Directions
3. Directions for Exchanges
[Removed]1 SECTION III Facilities for Authorised Dealers Category-I 1. Management of Banks’ Assets-Liabilities Users – AD Category I banks Purpose - Hedging of interest rate and currency risks of foreign exchange asset-liability portfolio Products - Interest Rate Swap, Interest Rate Cap/Collar, Currency Swap, Forward Rate Agreement. AD banks may also purchase call or put options to hedge their cross currency proprietary trading positions. Operational Guidelines, Terms and Conditions The use of these instruments is subject to the following conditions:
2. Hedging of Gold Prices Users –
Purpose – To hedge price risk of gold Products - Exchange-traded and over-the-counter hedging products available overseas. Operational Guidelines, Terms and Conditions
3. Hedging of Capital Users – Foreign banks operating in India Product – Forward foreign exchange contracts Operational Guidelines, Terms and Conditions a) Tier I capital -
b) Tier II capital -
4. Participation in the currency futures market in India a) AD Category I Banks may be guided by the DBOD instructions vide DBOD.No.FSD.BC. 29/24.01.001/2008-09 dated August 6, 2008. b) AD Category I Banks are permitted to become trading and clearing members of the currency futures market of recognised stock exchanges, on their own account and on behalf of their clients, subject to fulfilling the following minimum prudential requirements: i) Minimum net worth of Rs. 500 crores. ii) Minimum CRAR of 10 per cent. iii) Net NPA should not exceed 3 per cent. iv) Net profit for last 3 years. The AD Category - I banks which fulfill the prudential requirements should lay down detailed guidelines with the approval of their Boards for trading and clearing of currency futures contracts and management of risks. c) AD Category - I banks which do not meet the above minimum prudential requirements and AD Category - I banks which are Urban Co-operative banks or State Co-operative banks can participate in the currency futures market only as clients, subject to approval and directions from the respective regulatory Departments of the Reserve Bank. d) The AD Category - I banks, shall operate within prudential limits, such as Net Open Position (NOP) and Aggregate Gap (AG) limits. The exposure of the banks, on their own account, in the currency futures market shall form part of their NOP and AG limits. 5. Participation in the exchange traded currency options market in India a) AD Category - I banks are permitted to become trading and clearing members of the exchange traded currency options market of the recognized stock exchanges, on their own account and on behalf of their clients, subject to fulfilling the following minimum prudential requirements:
The AD Category - I banks, which fulfil the prudential requirements, should lay down detailed guidelines with the approval of their Boards for trading and clearing of the exchange traded currency options contracts and management of risks. b) AD Category - I banks, which do not meet the above minimum prudential requirements and AD Category - I banks, which are Urban Co-operative banks or State Co-operative banks, can participate in the exchange traded currency options market only as clients, subject to approval therefor from the respective regulatory Departments of the Reserve Bank. c) The AD Category - I banks shall operate within prudential limits, such as Net Open Position (NOP) and Aggregate Gap (AG) limits. The option position of the banks, on their own account, in the exchange traded currency options shall form part of their NOP and AG limits. 6. Operational Guidelines, terms and conditions for AD Category-I banks participation in the ETCD market (a) AD Category-I banks may undertake trading in all permitted exchange traded currency derivatives within their Net Open Position Limit (NOPL) subject to limits stipulated by the exchanges (for the purpose of risk management and preserving market integrity) provided that any synthetic USD-INR position created using a combination of exchange traded FCY- INR and cross-currency contracts shall have to be within the position limit prescribed by the exchange for the USD-INR contract. (b) AD Category-I banks may net / offset their positions in the ETCD market against the positions in the OTC derivatives markets. Keeping in view the volatility in the foreign exchange market, Reserve Bank may however stipulate a separate sub-limit of the NOPL (as a percentage thereof) exclusively for the OTC market as and when required. PART B ACCOUNTS OF NON-RESIDENT BANKS 1. General (i) Credit to the account of a non-resident bank is a permitted method of payment to non-residents and is, therefore, subject to the regulations applicable to transfers in foreign currency. (ii) Debit to the account of a non-resident bank is in effect an inward remittance in foreign currency. 2. Rupee Accounts of Non-Resident Banks AD Category I banks may open/close Rupee accounts (non-interest bearing) in the names of their overseas branches or correspondents without prior reference to the Reserve Bank. Opening of Rupee accounts in the names of branches of Pakistani banks operating outside Pakistan requires specific approval of the Reserve Bank. 3. Funding of Accounts of Non-resident Banks (i) AD Category I banks may freely purchase foreign currency from their overseas correspondents/branches at on-going market rates to lay down funds in their accounts for meeting their bonafide needs in India. (ii) Transactions in the accounts should be closely monitored to ensure that overseas banks do not take a speculative view on the Rupee. Any such instances should be notified to the Reserve Bank. NOTE: Forward purchase or sale of foreign currencies against Rupees for funding is prohibited. Offer of two-way quotes in Rupees to non-resident banks is also prohibited. 4. Transfers from other Accounts Transfer of funds between the accounts of the same bank or different banks is freely permitted. 5. Conversion of Rupees into Foreign Currencies Balances held in Rupee accounts of non-resident banks may be freely converted into foreign currency. All such transactions should be recorded in Form A2 and the corresponding debit to the account should be in form A3 under the relevant Returns. 6. Responsibilities of Paying and Receiving Banks In the case of credit to accounts the paying banker should ensure that all regulatory requirements are met and are correctly furnished in form A1/A2 as the case may be. 7. Refund of Rupee Remittances Requests for cancellation or refund of inward remittances may be complied with without reference to Reserve Bank after satisfying themselves that the refunds are not being made in cover of transactions of compensatory nature. 8. Overdrafts / Loans to Overseas Branches/ Correspondents (i) AD Category I banks may permit their overseas branches/ correspondents temporary overdrawals not exceeding Rs.500 lakhs in aggregate, for meeting normal business requirements. This limit applies to the amount outstanding against all overseas branches and correspondents in the books of all the branches of the authorised AD Category I bank in India. This facility should not be used to postpone funding of accounts. If overdrafts in excess of the above limit are not adjusted within five days a report should be submitted to the Chief General Manager, Financial Markets Regulation Department, Reserve Bank of India, Central Office, 9th Floor, Central Office Building, Shahid Bhagat Singh Road, Fort, Mumbai – 400 001 within 15 days from the close of the month, stating the reasons thereof. Such a report is not necessary if arrangements exist for value dating. (ii) AD Category I bank wishing to extend any other credit facility in excess of (i) above to overseas banks should seek prior approval from the Chief General Manager, Financial Markets Regulation Department, Reserve Bank of India, Central Office. 9. Rupee Accounts of Exchange Houses Opening of Rupee accounts in the names of Exchange Houses for facilitating private remittances into India requires approval of the Reserve Bank. Remittances through Exchange Houses for financing trade transactions are permitted upto Rs.15,00,000 per transaction2. PART C INTER-BANK FOREIGN EXCHANGE DEALINGS 1. General The Board of Directors of AD Category I banks should frame an appropriate policy and fix suitable limits for various Treasury functions. 2. Position and Gaps The net overnight open exchange position (Annex-I) and the aggregate gap limits should be communicated to the Reserve Bank soon after the approval of the Board / Management Committee. 3. Inter-bank Transactions Subject to compliance with the provisions of paragraphs 1 and 2, AD Category I banks may freely undertake foreign exchange transactions as under: a) With AD Category I banks in India: (i) Buying/Selling/Swapping foreign currency against Rupees or another foreign currency. (ii) Placing/Accepting deposits and Borrowing/Lending in foreign currency. b). With banks overseas and Off-shore Banking Units in Special Economic Zones (i) Buying/Selling/Swapping foreign currency against another foreign currency to cover client transactions or for adjustment of own position, (ii) Initiating trading positions in the overseas markets. NOTE : A. Funding of accounts of Non-resident banks - please refer to paragraph 3 of Part B. B. Form A2 need not be completed for sales in the inter-bank market, but all such transactions shall be reported to Reserve Bank in R Returns. 33A. Transaction in Non-deliverable derivative contracts (NDDC) Authorised dealers having an IFSC Banking Unit (IBU) (as specified in circular no.RBI/2014-15/533.DBR.IBD.BC.14570/23.13.004/2014-15 dated April 1, 2015 (as amended from time to time)) may transact in NDDCs with other AD Category-I banks having IBUs and banks overseas. Banks can undertake such transactions through their IBUs or through their branches in India or through their foreign branches (in case of foreign banks operating in India, through any branch of the parent bank). Such transactions can be cash-settled in INR or any foreign currency. 4. Foreign Currency Accounts/ Investments in Overseas Markets (i) Inflows into foreign currency accounts arise primarily from client-related transactions, swap deals, deposits, borrowings, etc. AD Category I banks may maintain balances in foreign currencies up to the levels approved by the Board. They are free to manage the surplus in these accounts through overnight placement and investments with their overseas branches/correspondents subject to adherence to the gap limits approved by the Reserve Bank. (ii) AD Category I banks are free to undertake investments in overseas markets up to the limits approved by their Board. Such investments may be made in overseas money market instruments and/or debt instruments issued by a foreign state with a residual maturity of less than one year and rated at least as AA (-) by Standard & Poor / FITCH IBCA or Aa3 by Moody's. For the purpose of investments in debt instruments other than the money market instruments of any foreign state, bank's Board may lay down country ratings and country - wise limits separately wherever necessary. NOTE: For the purpose of this clause, 'money market instrument' would include any debt instrument whose life to maturity does not exceed one year as on the date of purchase. (iii) AD Category I banks may also invest the un-deployed FCNR (B) funds in overseas markets in long-term fixed income securities subject to the condition that the maturity of the securities invested in do not exceed the maturity of the underlying FCNR (B) deposits. (iv) Foreign currency funds representing surpluses in the nostro accounts may be utilised for: a) making loans to resident constituents for meeting their foreign exchange requirements or for the Rupee working capital/capital expenditure needs of exporters/ corporates who have a natural hedge or a risk management policy for managing the exchange risk subject to the prudential/interest-rate norms, credit discipline and credit monitoring guidelines in force. b) extending credit facilities to Indian wholly owned subsidiaries/ joint ventures abroad in which at least 51 per cent equity is held by a resident company, subject to the guidelines issued by Reserve Bank (Department of Banking Regulation). (v) AD Category I banks may write-off/transfer to unclaimed balances account, un-reconciled debit/credit entries as per instructions issued by Department of Banking Regulation, from time to time. 5. Loans/Overdrafts a) All categories of overseas foreign currency borrowings of AD Category I banks, (except for borrowings at (c) below), including existing External Commercial Borrowings and loans/overdrafts from their Head Office, overseas branches and correspondents outside India, International / Multilateral Financial Institutions [see (e) below] or any other entity as permitted by Reserve Bank of India and overdrafts in nostro accounts (not adjusted within five days), shall not exceed 100 per cent of their unimpaired Tier I capital or USD 10 million (or its equivalent), whichever is higher subject to conditions laid down in (f) below. The aforesaid limit applies to the aggregate amount availed of by all the offices and branches in India from all their branches/correspondents abroad and also includes overseas borrowings in gold for funding domestic gold loans (cf. DBOD circular No.IBD.BC.33/23.67.001/2005-06 dated September 5, 2005). If drawals in excess of the above limit are not adjusted within five days, a report, as per the format in Annex-VIII, should be submitted to the Chief General Manager, Financial Markets Regulation Department, Reserve Bank of India, Central Office, 9th Floor, Central Office Building, Shahid Bhagat Singh Road, Fort, Mumbai – 400 001, within 15 days from the close of the month in which the limit was exceeded. Such a report is not necessary if arrangements exist for value dating. b) The funds so raised may be used for purposes other than lending in foreign currency to constituents in India and repaid without reference to the Reserve Bank. As an exception to this rule, AD Category I banks are permitted to use borrowed funds as also foreign currency funds received through swaps for granting foreign currency loans for export credit in terms of IECD Circular No 12/04.02.02/2002-03 dated January 31, 2003. Any fresh borrowing above this limit shall be made only with the prior approval of the Reserve Bank. Applications for fresh ECBs should be made as per the current ECB Policy. c) The following borrowings would continue to be outside the limit of 100 per cent of unimpaired Tier I capital or USD 10 million (or its equivalent), whichever is higher:
d) Interest on loans/overdrafts may be remitted (net of taxes) without the prior approval of Reserve Bank. e) 4AD category-I banks may borrow only from International / Multilateral Financial Institutions in which Government of India is a shareholding member or which have been established by more than one government or have shareholding by more than one government and other international organizations. f) The borrowings beyond 50 per cent of unimpaired Tier I capital of AD Category – I banks will be subject to the following conditions:
56. Customer and inter-bank transactions beyond onshore market hours Authorised dealers may undertake customer (persons resident in India and persons resident outside India) and inter-bank transactions beyond onshore market hours. Transactions with persons resident outside India, through their foreign branches and subsidiaries may also be undertaken beyond onshore market hours. [Removed]6 PART E i) The Head/Principal Office of each AD Category-I banks should submit daily statements of Foreign Exchange Turnover in Form FTD and Gaps, Position and Cash Balances in Form GPB through the Online Returns Filing System (ORFS) as per the format given in Annex-II. ii) [Removed]7 iii) [Removed]8 iv) AD Category-I banks should forward details of exposures in foreign exchange as at the end of every quarter as per the format given in Annex-V. ADs should submit this report as per the revised format online only from quarter ended September 2013 through the Extensible Business Reporting Language (XBRL) system which may be accessed at https://secweb.rbi.org.in/orfsxbrl/. AD Category – I banks which require login ID / passwords for accessing XBRL system may submit their e-mail addresses and contact numbers to e-mail. Please note that details of exposures of all corporate clients who meet the prescribed criteria have to be included in the report. The AD banks should submit this report based on bank's books and not based on corporate returns. v) Authorised Dealers Category I should forward details of option transactions (FCY-INR) undertaken on a weekly basis as per the format given in Annex VIII. The report may also be forwarded by e-mail so as to reach the Department by the 10th of the following month. vi) AD Category-I banks have to report their total outstanding foreign currency borrowings under all categories as on the last Friday of every month as per the format given in Annex-IX. The report should be received by the 10th of the following month. The report may also be forwarded by e-mail so as to reach the Department by the 10th of the following month. vii) [Removed]9 viii) The Head/Principal Office of each AD Category-I banks should submit a statement in form BAL giving details of their holdings of all foreign currencies on fortnightly basis through the web portal at https://bop.rbi.org.in as per the format given in Annex III10 within seven calendar days from the close of the reporting period to which it relates. ix) [Removed]11 x) The Head/Principal Office of each AD Category-I banks should furnish an up-to-date list (in triplicate) of all its offices/branches, which are maintaining Rupee accounts of non-resident banks as at the end of December every year giving their code numbers allotted by Reserve Bank. The list should be submitted before 15th January of the following year. The offices/branches should be classified according to area of jurisdiction of Reserve Bank Offices within which they are situated. The report may also be forwarded by e-mail so as to reach the Department by the 10th of the following month. xi) [Removed]12 xii) [Removed]13 xiii) Authorised Dealers should report on a quarterly basis, doubtful transactions involving frequent cancellation of hedge transactions and / or the underlying trade transactions by non-residents under the scheme as per the format indicated in the Annex XX. The report may also be forwarded by e-mail so as to reach the Department by the 10th of the following month. Reports are to be sent to The Chief General Manager, Financial Markets Regulation Department Reserve Bank of India, Central Office, 9th Floor, Central Office Building, Shahid Bhagat Singh Road, Fort, Mumbai - 400 001 unless otherwise specified. Reports may be sent preferably through e-mail. [See Part C, Paragraph 2] A. Guidelines for Foreign Exchange Exposure Limits of Authorised Dealers Category – I The Foreign Exchange Exposure Limits of Authorised Dealers would be dual in nature.
For banks incorporated in India, the exposure limits fixed by the Board should be the aggregate for all branches including their overseas branches and Off-shore Banking Units. For foreign banks, the limits will cover only their branches in India. i. Net Overnight Open Position Limit (NOOPL) for calculation of capital charge on forex risk NOOPL may be fixed by the boards of the respective banks and communicated to the Reserve Bank immediately. However, such limits should not exceed 25 percent of the total capital (Tier I and Tier II capital) of the bank. The Net Open position may be calculated as per the method given below: 1. Calculation of the Net Open Position in a Single Currency The open position must first be measured separately for each foreign currency. The open position in a currency is the sum of (a) the net spot position, (b) the net forward position and (c) the net options position. a) Net Spot Position The net spot position is the difference between foreign currency assets and the liabilities in the balance sheet. This should include all accrued income/expenses. b) Net Forward Position This represents the net of all amounts to be received less all amounts to be paid in the future as a result of foreign exchange transactions which have been concluded. These transactions, which are recorded as off-balance sheet items in the bank's books, would include:
c) Net Options Position The options position is the "delta-equivalent" spot currency position as reflected in the authorized dealer's options risk management system, and includes any delta hedges in place which have not already been included under 1(a) or 1(b) (i) and (ii) above. 2. Calculation of the Overall Net Open Position This involves measurement of risks inherent in a bank's mix of long and short position in different currencies. It has been decided to adopt the "shorthand method" which is accepted internationally for arriving at the overall net open position. Banks may, therefore, calculate the overall net open position as follows: i. Calculate the net open position in each currency (paragraph 1 above). ii. Calculate the net open position in gold. iii. Convert the net position in various currencies and gold into Rupees in terms of existing RBI / FEDAI Guidelines. All derivative transactions including forward exchange contracts should be reported on the basis of Present Value (PV) adjustment. iv. Arrive at the sum of all the net short positions. v. Arrive at the sum of all the net long positions. Overall net foreign exchange position is the higher of (iv) or (v). The overall net foreign exchange position arrived at as above must be kept within the limit approved by the bank’s Board. Note: Authorised Dealer banks should report all derivative transactions including forward exchange contracts on the basis of PV adjustment for the purpose of calculation of the net open position. Authorised Dealer banks may select their own yield curve for the purpose of PV adjustments. The banks however should have an internal policy approved by its ALCO regarding the yield curve/(s) to be used and apply it on a consistent basis. 3. Offshore exposures For banks with overseas presence, the offshore exposures should be calculated on a standalone basis as per the above method and should not be netted with onshore exposures. The aggregate limit (on-shore + off-shore) may be termed Net Overnight open Position (NOOP) and will be subjected to capital charge. Accumulated surplus of foreign branches need not be reckoned for calculation of open position. An illustrative example is as follows: If a bank has, let us say three foreign branches and the three branches have open position as below- Branch A: + Rs 15 crores Branch B: + Rs 5 crores Branch C: - Rs 12 crores The open position for the overseas branches taken together would be Rs 20 crores. 4. Capital14 Requirement As prescribed by the Reserve Bank from time to time 5. Other Guidelines i. ALCO / Internal Audit Committee of the Authorized Dealers should monitor the utilization of and adherence to the limits. ii. Authorized Dealers should also have a system in place to demonstrate, whenever required, the various components of the NOOP as prescribed in the guidelines for verification by Reserve Bank. iii. Transactions undertaken by Authorized Dealers till the end of business day may be computed for calculation of Foreign Exchange Exposure Limits. The transactions undertaken after the end of business day may be taken into the positions for the next day. The end of day time may be approved by the bank’s Board. ii. Limit for positions involving Rupee as one of the currencies (NOP-INR) for exchange rate management
B. Aggregate Gap Limits (AGL) i. AGL may be fixed by the boards of the respective banks and communicated to the Reserve Bank immediately. However, such limits should not exceed 6 times the total capital (Tier I and Tier II capital) of the bank. ii. However, Authorised Dealers which have instituted superior measures such as tenor wise PV01 limits and VaR to aggregate foreign exchange gap risks are allowed to fix their own PV01 and VaR limits based on their capital, risk bearing capacity etc. in place of AGL and communicate the same to the Reserve Bank. The procedure and calculation of the limit should be clearly documented as an internal policy and strictly adhered to. [see Part E, paragraph (i)] Reporting of Forex Turnover Data - FTD and GPB The guidelines and formats for preparation of the FTD and GPB reports are given below. AD Category-I banks may ensure that the reports are properly compiled on the basis of these guidelines: The data for a particular date has to reach us by the close of business of the following working day. FTD 1. SPOT - Cash and tom transactions are to be included under ‘Spot’ transactions. 2. SWAP - Only foreign exchange swaps between authorised dealers category-I should be reported under swap transactions. Long term swaps (both cross currency and foreign currency-Rupee swaps) should not be included in this report. Swap transactions should be reported only once and should not be included under either the ‘spot’ or ‘forward’ transactions. Buy/Sell swaps should be included in the ‘Purchase’ side under ‘Swaps’ while Sell/buy swaps should figure on the ‘Sale’ side. 3. Cancellation of forwards - The amount required to be reported under cancellation of forward contracts against purchases from merchants should be the aggregate of cancelled forward merchant sale contracts by authorised dealers category-I (adding to the supply in the market). On the sale side of cancelled forward contracts, aggregate of the cancelled forward purchase contracts should be indicated (adding to the demand in the market). 4 ‘FCY/FCY’ transactions - Both the legs of the transactions should be reported in the respective columns. For example in a EUR/USD purchase contract, the EUR amount should be included in the purchase side while the USD amount should be included in the sale side. 5. Transactions with RBI should be included in inter-bank transactions. Transactions with financial institutions other than banks authorised to deal in foreign exchange should be included under merchant transactions. GPB 1. Foreign Currency Balances - Cash balances and investments in all foreign currencies should be converted into US dollars and reported under this head. 2. Net open exchange position- This should indicate the overall overnight net open exchange position of the authorised dealer category-I in Rs. Crore. The net overnight open position should be calculated on the basis of the instructions given in Annex I. 3. Of the above FCY/INR- The amount to be reported is the position against the Rupee- i.e. the net overnight open exchange position less cross currency position, if any. Formats of FTD and GPB Statements FTD Statement showing daily turnover of foreign exchange dated………
GPB Statement showing gaps, position and cash balances as on………..
FOREIGN CURRENCY MATURITY MISMATCH (IN USD MILLION)
[Removed]15 [see Part E , paragraph (iv)] Information relating to exposures in foreign currency as on ___________
Note: AD Category – I banks should submit the above quarterly report as per the revised format online only from quarter ended September 2013 through the Extensible Business Reporting Language (XBRL) system which may be accessed at https://secweb.rbi.org.in/orfsxbrl/. [Removed]16 [Removed]17 [see Part E , paragraph (v)] FCY/Rupee Option transactions For the week ended__________________ A. Option Transaction Report
II. Option Positions Report
Total Net Open Options Position (INR): The total net open options position can be arrived using the methodology prescribed in A. P. (DIR Series) Circular No. 92 dated April 4, 2003. III. Change in Portfolio Delta Report Change in USD-INR delta for a 0.25% change in spot ($-appreciation) in INR terms = Change in USD-INR delta for a 0.25% change in spot ($-depreciation) in INR terms = Similarly, Change in delta for a 0.25% change in spot (FCY appreciation & depreciation separately) in INR terms for other currency pairs, such as EUR-INR, JPY-INR etc. IV. Strike Concentration Report
This report should be prepared for a range of 150 paise around current spot level. Cumulative positions to be given. All amounts in USD million. When the bank owns an option, the amount should be shown as positive. When the bank has sold an option, the amount should be shown as negative. All reports may be sent via e-mail by market-makers. Reports may be prepared as of every Friday and sent by the following Monday. [See Part C, paragraph 5 (a)] Overseas foreign currency borrowings –Report as on ……….. Amount (in equivalent USD* Million)
[Removed]18 [Removed]19 [Removed]20 [Removed]21 [Removed]22 [Removed]23 [Removed]24 [Removed]25 [Removed]26 [Removed]27 Reporting of suspicious transactions undertaken by non-resident importer / exporter – for the quarter ended ___________ Name of the AD Category I Bank –
[See Part A, Section I, Paragraph 2.A.i] User Classification Framework 1. User Classification i. For the purpose of offering derivative contracts to a user, the Authorised Dealer shall classify the user either as a retail user or as a non-retail user. ii. The following users shall be eligible to be classified as non-retail users:
iii. Any user who is not eligible to be classified as a non-retail user shall be classified as a retail user. iv. Any user who is otherwise eligible to be classified as a non-retail user shall have the option to get classified as a retail user. 2. Directions in case of retail users
3. Directions in case of non-retail users
List of Notifications which have been consolidated in the Master Direction - Risk Management and Inter-Bank Dealings List of circulars which have been consolidated in the Master Direction - Risk Management and Inter-Bank Dealings These circulars should be read in conjunction with FEMA, 1999 and the Rules/Regulations/Directions/Orders/Notifications issued thereunder. 1 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 2 A. P. (DIR Series) Circular No. 102 May 21, 2015 3 A. P. (DIR Series) Circular No. 23 dated March 27, 2020 4 A.P. (DIR Series) Circular No. 112 dated June 25, 2015 5 A.P. (DIR Series) Circular No. 15 dated January 06, 2020 6 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 7 A. P. (DIR Series) Circular No. 3 dated August 10, 2017 8 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 9 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 10 A. P. (DIR Series) Circular No. 3 dated August 10, 2017 11 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 12 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 13 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 14 Capital refers to Tier I capital as per instructions issued by Reserve Bank of India (Department of Banking Operations and Development). 15 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 16 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 17 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 18 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 19 RBI/2017-18/138 A.P. (DIR Series) Circular No. 19 dated March 12, 2018 20 RBI/2017-18/138 A.P. (DIR Series) Circular No. 19 dated March 12, 2018 21 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 22 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 23 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 24 RBI/2017-18/138 A.P. (DIR Series) Circular No. 19 dated March 12, 2018 25 RBI/2017-18/138 A.P. (DIR Series) Circular No. 19 dated March 12, 2018 |
RBI/FMRD/2016-17/31 July 5, 2016 All Authorised Dealers - Category I Banks Madam / Sir, Master Direction - Risk Management and Inter-Bank Dealings In exercise of the powers conferred by clause (h) of sub-section (2) of section 47 of the Foreign Exchange Management Act (FEMA), 1999 (42 of 1999), the Reserve Bank has framed regulations to promote orderly development and maintenance of foreign exchange market in India through Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 Notification No. FEMA 25/RB-2000 dated May 3, 2000 and subsequent amendments thereto. Attention is also drawn to provisions in Notification No. FEMA 1/2000-RB, Regulation 4(2) of Notification No. FEMA 3/RB-2000 and subsequent amendments thereto. All of the above govern the Foreign Exchange Derivative Contracts, Overseas Commodity & Freight Hedging, Rupee Accounts of Non-Resident Banks and Inter-Bank Foreign Exchange Dealings etc. These Regulations are amended from time to time to incorporate the changes in the regulatory framework and published through amendment notifications. 2. Within the contours of the Regulations, the Reserve Bank issues directions to Authorised Persons under Section 11 of the Foreign Exchange Management Act (FEMA), 1999. These directions lay down the modalities as to how the foreign exchange business has to be conducted by the Authorised Persons with their customers / constituents with a view to implementing the regulations framed. 3. Instructions issued in respect of Foreign Exchange Derivative Contracts, Overseas Commodity & Freight Hedging, Rupee Accounts of Non-Resident Banks and Inter-Bank Foreign Exchange Dealings etc. have been compiled in this Master Direction. The list of underlying notifications / circulars which form the basis of this Master Direction is furnished in the Appendix. 4. It may be noted that, whenever necessary, Reserve Bank shall issue directions to Authorised Persons through A.P. (DIR Series) Circulars in regard to any change in the Regulations or the manner in which relative transactions are to be conducted by the Authorised Persons with their customers/ constituents. The Master Direction issued herewith shall be amended suitably simultaneously. Yours faithfully, (Dimple Bhandia) PART – A SECTION I Facilities for Persons Resident in India other than Authorised Dealers Category – I and for Persons Resident outside India 1. Definitions
2. Directions for Authorised Dealers A. General Directions i. Authorised Dealers shall classify a user as per the User Classification Framework provided at Annex XXI to this direction and shall comply with the guidelines applicable in each case. ii. Authorised Dealers shall offer derivative contracts to a user as per the user’s classification in para (i) above. While offering a derivative contract involving INR, other than NDDCs, to a user, and during the life of such contracts, Authorised Dealers shall ensure that:
iii. Authorised Dealers shall allow users to freely cancel and rebook derivative contracts. However, net gains (gains over and above losses if any) on contracts booked to hedge an anticipated exposure shall be passed on to the eligible user only at the time of the cash flow of the anticipated transaction. In case of part delivery, net gains will be transferred on a pro-rata basis. iv. Authorised Dealers may, in exceptional cases, pass on the net gains on contracts booked to hedge an anticipated exposure whose underlying cash flow has not materialised, provided it is satisfied that the absence of cash flow is on account of factors which are beyond the control of the user. Such instances along with specific justification, shall be kept on record by the Authorised Dealer. v. All derivative contracts shall be subject to the Suitability and Appropriateness policy prescribed vide circular no.DBOD.No.BP.BC.86/21.04.157/2006-07 dated April 20, 2007 on Comprehensive Guidelines on Derivatives (as amended from time to time). vi. Authorised Dealers specifically designated by a user for the purpose of monitoring of transaction on exchanges shall ensure that all positions of the user in all contracts involving INR on all the exchanges put together, is backed by a contracted exposure to INR. vii. Authorised Dealers may call for such documents from the eligible users as they deem necessary for complying with the requirements of these directions. viii. Authorised Dealers, unless permitted by Reserve Bank to run books in contracts not involving INR, shall offer such contracts on a fully covered back-to-back basis. ix. Existing contracts booked under the provisions of the earlier direction may be continued till the date of their expiry. x. Banks in India having an Authorised Dealer Category-1 license under FEMA, 1999, and operating International Financial Services Centre (IFSC) Banking Units (IBUs) (as specified in circular no.RBI/2014-15/ 533.DBR.IBD.BC.14570/23.13.004/2014-15 dated April 1, 2015 (as amended from time to time)), shall be eligible to offer non-deliverable derivative contracts involving the Rupee, or otherwise, to persons not resident in India. Banks can undertake such transactions through their IBUs or through their branches in India or through their foreign branches (in case of foreign banks operating in India, through any branch of the parent bank). B. Specific Directions
3. Directions for Exchanges
[Removed]1 SECTION III Facilities for Authorised Dealers Category-I 1. Management of Banks’ Assets-Liabilities Users – AD Category I banks Purpose - Hedging of interest rate and currency risks of foreign exchange asset-liability portfolio Products - Interest Rate Swap, Interest Rate Cap/Collar, Currency Swap, Forward Rate Agreement. AD banks may also purchase call or put options to hedge their cross currency proprietary trading positions. Operational Guidelines, Terms and Conditions The use of these instruments is subject to the following conditions:
2. Hedging of Gold Prices Users –
Purpose – To hedge price risk of gold Products - Exchange-traded and over-the-counter hedging products available overseas. Operational Guidelines, Terms and Conditions
3. Hedging of Capital Users – Foreign banks operating in India Product – Forward foreign exchange contracts Operational Guidelines, Terms and Conditions a) Tier I capital -
b) Tier II capital -
4. Participation in the currency futures market in India a) AD Category I Banks may be guided by the DBOD instructions vide DBOD.No.FSD.BC. 29/24.01.001/2008-09 dated August 6, 2008. b) AD Category I Banks are permitted to become trading and clearing members of the currency futures market of recognised stock exchanges, on their own account and on behalf of their clients, subject to fulfilling the following minimum prudential requirements: i) Minimum net worth of Rs. 500 crores. ii) Minimum CRAR of 10 per cent. iii) Net NPA should not exceed 3 per cent. iv) Net profit for last 3 years. The AD Category - I banks which fulfill the prudential requirements should lay down detailed guidelines with the approval of their Boards for trading and clearing of currency futures contracts and management of risks. c) AD Category - I banks which do not meet the above minimum prudential requirements and AD Category - I banks which are Urban Co-operative banks or State Co-operative banks can participate in the currency futures market only as clients, subject to approval and directions from the respective regulatory Departments of the Reserve Bank. d) The AD Category - I banks, shall operate within prudential limits, such as Net Open Position (NOP) and Aggregate Gap (AG) limits. The exposure of the banks, on their own account, in the currency futures market shall form part of their NOP and AG limits. 5. Participation in the exchange traded currency options market in India a) AD Category - I banks are permitted to become trading and clearing members of the exchange traded currency options market of the recognized stock exchanges, on their own account and on behalf of their clients, subject to fulfilling the following minimum prudential requirements:
The AD Category - I banks, which fulfil the prudential requirements, should lay down detailed guidelines with the approval of their Boards for trading and clearing of the exchange traded currency options contracts and management of risks. b) AD Category - I banks, which do not meet the above minimum prudential requirements and AD Category - I banks, which are Urban Co-operative banks or State Co-operative banks, can participate in the exchange traded currency options market only as clients, subject to approval therefor from the respective regulatory Departments of the Reserve Bank. c) The AD Category - I banks shall operate within prudential limits, such as Net Open Position (NOP) and Aggregate Gap (AG) limits. The option position of the banks, on their own account, in the exchange traded currency options shall form part of their NOP and AG limits. 6. Operational Guidelines, terms and conditions for AD Category-I banks participation in the ETCD market (a) AD Category-I banks may undertake trading in all permitted exchange traded currency derivatives within their Net Open Position Limit (NOPL) subject to limits stipulated by the exchanges (for the purpose of risk management and preserving market integrity) provided that any synthetic USD-INR position created using a combination of exchange traded FCY- INR and cross-currency contracts shall have to be within the position limit prescribed by the exchange for the USD-INR contract. (b) AD Category-I banks may net / offset their positions in the ETCD market against the positions in the OTC derivatives markets. Keeping in view the volatility in the foreign exchange market, Reserve Bank may however stipulate a separate sub-limit of the NOPL (as a percentage thereof) exclusively for the OTC market as and when required. PART B ACCOUNTS OF NON-RESIDENT BANKS 1. General (i) Credit to the account of a non-resident bank is a permitted method of payment to non-residents and is, therefore, subject to the regulations applicable to transfers in foreign currency. (ii) Debit to the account of a non-resident bank is in effect an inward remittance in foreign currency. 2. Rupee Accounts of Non-Resident Banks AD Category I banks may open/close Rupee accounts (non-interest bearing) in the names of their overseas branches or correspondents without prior reference to the Reserve Bank. Opening of Rupee accounts in the names of branches of Pakistani banks operating outside Pakistan requires specific approval of the Reserve Bank. 3. Funding of Accounts of Non-resident Banks (i) AD Category I banks may freely purchase foreign currency from their overseas correspondents/branches at on-going market rates to lay down funds in their accounts for meeting their bonafide needs in India. (ii) Transactions in the accounts should be closely monitored to ensure that overseas banks do not take a speculative view on the Rupee. Any such instances should be notified to the Reserve Bank. NOTE: Forward purchase or sale of foreign currencies against Rupees for funding is prohibited. Offer of two-way quotes in Rupees to non-resident banks is also prohibited. 4. Transfers from other Accounts Transfer of funds between the accounts of the same bank or different banks is freely permitted. 5. Conversion of Rupees into Foreign Currencies Balances held in Rupee accounts of non-resident banks may be freely converted into foreign currency. All such transactions should be recorded in Form A2 and the corresponding debit to the account should be in form A3 under the relevant Returns. 6. Responsibilities of Paying and Receiving Banks In the case of credit to accounts the paying banker should ensure that all regulatory requirements are met and are correctly furnished in form A1/A2 as the case may be. 7. Refund of Rupee Remittances Requests for cancellation or refund of inward remittances may be complied with without reference to Reserve Bank after satisfying themselves that the refunds are not being made in cover of transactions of compensatory nature. 8. Overdrafts / Loans to Overseas Branches/ Correspondents (i) AD Category I banks may permit their overseas branches/ correspondents temporary overdrawals not exceeding Rs.500 lakhs in aggregate, for meeting normal business requirements. This limit applies to the amount outstanding against all overseas branches and correspondents in the books of all the branches of the authorised AD Category I bank in India. This facility should not be used to postpone funding of accounts. If overdrafts in excess of the above limit are not adjusted within five days a report should be submitted to the Chief General Manager, Financial Markets Regulation Department, Reserve Bank of India, Central Office, 9th Floor, Central Office Building, Shahid Bhagat Singh Road, Fort, Mumbai – 400 001 within 15 days from the close of the month, stating the reasons thereof. Such a report is not necessary if arrangements exist for value dating. (ii) AD Category I bank wishing to extend any other credit facility in excess of (i) above to overseas banks should seek prior approval from the Chief General Manager, Financial Markets Regulation Department, Reserve Bank of India, Central Office. 9. Rupee Accounts of Exchange Houses Opening of Rupee accounts in the names of Exchange Houses for facilitating private remittances into India requires approval of the Reserve Bank. Remittances through Exchange Houses for financing trade transactions are permitted upto Rs.15,00,000 per transaction2. PART C INTER-BANK FOREIGN EXCHANGE DEALINGS 1. General The Board of Directors of AD Category I banks should frame an appropriate policy and fix suitable limits for various Treasury functions. 2. Position and Gaps The net overnight open exchange position (Annex-I) and the aggregate gap limits should be communicated to the Reserve Bank soon after the approval of the Board / Management Committee. 3. Inter-bank Transactions Subject to compliance with the provisions of paragraphs 1 and 2, AD Category I banks may freely undertake foreign exchange transactions as under: a) With AD Category I banks in India: (i) Buying/Selling/Swapping foreign currency against Rupees or another foreign currency. (ii) Placing/Accepting deposits and Borrowing/Lending in foreign currency. b). With banks overseas and Off-shore Banking Units in Special Economic Zones (i) Buying/Selling/Swapping foreign currency against another foreign currency to cover client transactions or for adjustment of own position, (ii) Initiating trading positions in the overseas markets. NOTE : A. Funding of accounts of Non-resident banks - please refer to paragraph 3 of Part B. B. Form A2 need not be completed for sales in the inter-bank market, but all such transactions shall be reported to Reserve Bank in R Returns. 33A. Transaction in Non-deliverable derivative contracts (NDDC) Authorised dealers having an IFSC Banking Unit (IBU) (as specified in circular no.RBI/2014-15/533.DBR.IBD.BC.14570/23.13.004/2014-15 dated April 1, 2015 (as amended from time to time)) may transact in Non-deliverable derivative contracts (NDDCs) with other AD Category 1 banks having IBUs and banks overseas. Banks can undertake such transactions through their IBUs or through their branches in India or through their foreign branches (in case of foreign banks operating in India, through any branch of the parent bank).4. Foreign Currency Accounts/ Investments in Overseas Markets (i) Inflows into foreign currency accounts arise primarily from client-related transactions, swap deals, deposits, borrowings, etc. AD Category I banks may maintain balances in foreign currencies up to the levels approved by the Board. They are free to manage the surplus in these accounts through overnight placement and investments with their overseas branches/correspondents subject to adherence to the gap limits approved by the Reserve Bank. (ii) AD Category I banks are free to undertake investments in overseas markets up to the limits approved by their Board. Such investments may be made in overseas money market instruments and/or debt instruments issued by a foreign state with a residual maturity of less than one year and rated at least as AA (-) by Standard & Poor / FITCH IBCA or Aa3 by Moody's. For the purpose of investments in debt instruments other than the money market instruments of any foreign state, bank's Board may lay down country ratings and country - wise limits separately wherever necessary. NOTE: For the purpose of this clause, 'money market instrument' would include any debt instrument whose life to maturity does not exceed one year as on the date of purchase. (iii) AD Category I banks may also invest the un-deployed FCNR (B) funds in overseas markets in long-term fixed income securities subject to the condition that the maturity of the securities invested in do not exceed the maturity of the underlying FCNR (B) deposits. (iv) Foreign currency funds representing surpluses in the nostro accounts may be utilised for: a) making loans to resident constituents for meeting their foreign exchange requirements or for the Rupee working capital/capital expenditure needs of exporters/ corporates who have a natural hedge or a risk management policy for managing the exchange risk subject to the prudential/interest-rate norms, credit discipline and credit monitoring guidelines in force. b) extending credit facilities to Indian wholly owned subsidiaries/ joint ventures abroad in which at least 51 per cent equity is held by a resident company, subject to the guidelines issued by Reserve Bank (Department of Banking Regulation). (v) AD Category I banks may write-off/transfer to unclaimed balances account, un-reconciled debit/credit entries as per instructions issued by Department of Banking Regulation, from time to time. 5. Loans/Overdrafts a) All categories of overseas foreign currency borrowings of AD Category I banks, (except for borrowings at (c) below), including existing External Commercial Borrowings and loans/overdrafts from their Head Office, overseas branches and correspondents outside India, International / Multilateral Financial Institutions [see (e) below] or any other entity as permitted by Reserve Bank of India and overdrafts in nostro accounts (not adjusted within five days), shall not exceed 100 per cent of their unimpaired Tier I capital or USD 10 million (or its equivalent), whichever is higher subject to conditions laid down in (f) below. The aforesaid limit applies to the aggregate amount availed of by all the offices and branches in India from all their branches/correspondents abroad and also includes overseas borrowings in gold for funding domestic gold loans (cf. DBOD circular No.IBD.BC.33/23.67.001/2005-06 dated September 5, 2005). If drawals in excess of the above limit are not adjusted within five days, a report, as per the format in Annex-VIII, should be submitted to the Chief General Manager, Financial Markets Regulation Department, Reserve Bank of India, Central Office, 9th Floor, Central Office Building, Shahid Bhagat Singh Road, Fort, Mumbai – 400 001, within 15 days from the close of the month in which the limit was exceeded. Such a report is not necessary if arrangements exist for value dating. b) The funds so raised may be used for purposes other than lending in foreign currency to constituents in India and repaid without reference to the Reserve Bank. As an exception to this rule, AD Category I banks are permitted to use borrowed funds as also foreign currency funds received through swaps for granting foreign currency loans for export credit in terms of IECD Circular No 12/04.02.02/2002-03 dated January 31, 2003. Any fresh borrowing above this limit shall be made only with the prior approval of the Reserve Bank. Applications for fresh ECBs should be made as per the current ECB Policy. c) The following borrowings would continue to be outside the limit of 100 per cent of unimpaired Tier I capital or USD 10 million (or its equivalent), whichever is higher:
d) Interest on loans/overdrafts may be remitted (net of taxes) without the prior approval of Reserve Bank. e) 4AD category-I banks may borrow only from International / Multilateral Financial Institutions in which Government of India is a shareholding member or which have been established by more than one government or have shareholding by more than one government and other international organizations. f) The borrowings beyond 50 per cent of unimpaired Tier I capital of AD Category – I banks will be subject to the following conditions:
56. Customer and inter-bank transactions beyond onshore market hours Authorised dealers may undertake customer (persons resident in India and persons resident outside India) and inter-bank transactions beyond onshore market hours. Transactions with persons resident outside India, through their foreign branches and subsidiaries may also be undertaken beyond onshore market hours. [Removed]6 PART E i) The Head/Principal Office of each AD Category-I banks should submit daily statements of Foreign Exchange Turnover in Form FTD and Gaps, Position and Cash Balances in Form GPB through the Online Returns Filing System (ORFS) as per the format given in Annex-II. ii) [Removed]7 iii) [Removed]8 iv) AD Category-I banks should forward details of exposures in foreign exchange as at the end of every quarter as per the format given in Annex-V. ADs should submit this report as per the revised format online only from quarter ended September 2013 through the Extensible Business Reporting Language (XBRL) system which may be accessed at https://secweb.rbi.org.in/orfsxbrl/. AD Category – I banks which require login ID / passwords for accessing XBRL system may submit their e-mail addresses and contact numbers to e-mail. Please note that details of exposures of all corporate clients who meet the prescribed criteria have to be included in the report. The AD banks should submit this report based on bank's books and not based on corporate returns. v) Authorised Dealers Category I should forward details of option transactions (FCY-INR) undertaken on a weekly basis as per the format given in Annex VIII. The report may also be forwarded by e-mail so as to reach the Department by the 10th of the following month. vi) AD Category-I banks have to report their total outstanding foreign currency borrowings under all categories as on the last Friday of every month as per the format given in Annex-IX. The report should be received by the 10th of the following month. The report may also be forwarded by e-mail so as to reach the Department by the 10th of the following month. vii) [Removed]9 viii) The Head/Principal Office of each AD Category-I banks should submit a statement in form BAL giving details of their holdings of all foreign currencies on fortnightly basis through the web portal at https://bop.rbi.org.in as per the format given in Annex III10 within seven calendar days from the close of the reporting period to which it relates. ix) [Removed]11 x) The Head/Principal Office of each AD Category-I banks should furnish an up-to-date list (in triplicate) of all its offices/branches, which are maintaining Rupee accounts of non-resident banks as at the end of December every year giving their code numbers allotted by Reserve Bank. The list should be submitted before 15th January of the following year. The offices/branches should be classified according to area of jurisdiction of Reserve Bank Offices within which they are situated. The report may also be forwarded by e-mail so as to reach the Department by the 10th of the following month. xi) [Removed]12 xii) [Removed]13 xiii) Authorised Dealers should report on a quarterly basis, doubtful transactions involving frequent cancellation of hedge transactions and / or the underlying trade transactions by non-residents under the scheme as per the format indicated in the Annex XX. The report may also be forwarded by e-mail so as to reach the Department by the 10th of the following month. Reports are to be sent to The Chief General Manager, Financial Markets Regulation Department Reserve Bank of India, Central Office, 9th Floor, Central Office Building, Shahid Bhagat Singh Road, Fort, Mumbai - 400 001 unless otherwise specified. Reports may be sent preferably through e-mail. [See Part C, Paragraph 2] A. Guidelines for Foreign Exchange Exposure Limits of Authorised Dealers Category – I The Foreign Exchange Exposure Limits of Authorised Dealers would be dual in nature.
For banks incorporated in India, the exposure limits fixed by the Board should be the aggregate for all branches including their overseas branches and Off-shore Banking Units. For foreign banks, the limits will cover only their branches in India. i. Net Overnight Open Position Limit (NOOPL) for calculation of capital charge on forex risk NOOPL may be fixed by the boards of the respective banks and communicated to the Reserve Bank immediately. However, such limits should not exceed 25 percent of the total capital (Tier I and Tier II capital) of the bank. The Net Open position may be calculated as per the method given below: 1. Calculation of the Net Open Position in a Single Currency The open position must first be measured separately for each foreign currency. The open position in a currency is the sum of (a) the net spot position, (b) the net forward position and (c) the net options position. a) Net Spot Position The net spot position is the difference between foreign currency assets and the liabilities in the balance sheet. This should include all accrued income/expenses. b) Net Forward Position This represents the net of all amounts to be received less all amounts to be paid in the future as a result of foreign exchange transactions which have been concluded. These transactions, which are recorded as off-balance sheet items in the bank's books, would include:
c) Net Options Position The options position is the "delta-equivalent" spot currency position as reflected in the authorized dealer's options risk management system, and includes any delta hedges in place which have not already been included under 1(a) or 1(b) (i) and (ii) above. 2. Calculation of the Overall Net Open Position This involves measurement of risks inherent in a bank's mix of long and short position in different currencies. It has been decided to adopt the "shorthand method" which is accepted internationally for arriving at the overall net open position. Banks may, therefore, calculate the overall net open position as follows: i. Calculate the net open position in each currency (paragraph 1 above). ii. Calculate the net open position in gold. iii. Convert the net position in various currencies and gold into Rupees in terms of existing RBI / FEDAI Guidelines. All derivative transactions including forward exchange contracts should be reported on the basis of Present Value (PV) adjustment. iv. Arrive at the sum of all the net short positions. v. Arrive at the sum of all the net long positions. Overall net foreign exchange position is the higher of (iv) or (v). The overall net foreign exchange position arrived at as above must be kept within the limit approved by the bank’s Board. Note: Authorised Dealer banks should report all derivative transactions including forward exchange contracts on the basis of PV adjustment for the purpose of calculation of the net open position. Authorised Dealer banks may select their own yield curve for the purpose of PV adjustments. The banks however should have an internal policy approved by its ALCO regarding the yield curve/(s) to be used and apply it on a consistent basis. 3. Offshore exposures For banks with overseas presence, the offshore exposures should be calculated on a standalone basis as per the above method and should not be netted with onshore exposures. The aggregate limit (on-shore + off-shore) may be termed Net Overnight open Position (NOOP) and will be subjected to capital charge. Accumulated surplus of foreign branches need not be reckoned for calculation of open position. An illustrative example is as follows: If a bank has, let us say three foreign branches and the three branches have open position as below- Branch A: + Rs 15 crores Branch B: + Rs 5 crores Branch C: - Rs 12 crores The open position for the overseas branches taken together would be Rs 20 crores. 4. Capital14 Requirement As prescribed by the Reserve Bank from time to time 5. Other Guidelines i. ALCO / Internal Audit Committee of the Authorized Dealers should monitor the utilization of and adherence to the limits. ii. Authorized Dealers should also have a system in place to demonstrate, whenever required, the various components of the NOOP as prescribed in the guidelines for verification by Reserve Bank. iii. Transactions undertaken by Authorized Dealers till the end of business day may be computed for calculation of Foreign Exchange Exposure Limits. The transactions undertaken after the end of business day may be taken into the positions for the next day. The end of day time may be approved by the bank’s Board. ii. Limit for positions involving Rupee as one of the currencies (NOP-INR) for exchange rate management
B. Aggregate Gap Limits (AGL) i. AGL may be fixed by the boards of the respective banks and communicated to the Reserve Bank immediately. However, such limits should not exceed 6 times the total capital (Tier I and Tier II capital) of the bank. ii. However, Authorised Dealers which have instituted superior measures such as tenor wise PV01 limits and VaR to aggregate foreign exchange gap risks are allowed to fix their own PV01 and VaR limits based on their capital, risk bearing capacity etc. in place of AGL and communicate the same to the Reserve Bank. The procedure and calculation of the limit should be clearly documented as an internal policy and strictly adhered to. [see Part E, paragraph (i)] Reporting of Forex Turnover Data - FTD and GPB The guidelines and formats for preparation of the FTD and GPB reports are given below. AD Category-I banks may ensure that the reports are properly compiled on the basis of these guidelines: The data for a particular date has to reach us by the close of business of the following working day. FTD 1. SPOT - Cash and tom transactions are to be included under ‘Spot’ transactions. 2. SWAP - Only foreign exchange swaps between authorised dealers category-I should be reported under swap transactions. Long term swaps (both cross currency and foreign currency-Rupee swaps) should not be included in this report. Swap transactions should be reported only once and should not be included under either the ‘spot’ or ‘forward’ transactions. Buy/Sell swaps should be included in the ‘Purchase’ side under ‘Swaps’ while Sell/buy swaps should figure on the ‘Sale’ side. 3. Cancellation of forwards - The amount required to be reported under cancellation of forward contracts against purchases from merchants should be the aggregate of cancelled forward merchant sale contracts by authorised dealers category-I (adding to the supply in the market). On the sale side of cancelled forward contracts, aggregate of the cancelled forward purchase contracts should be indicated (adding to the demand in the market). 4 ‘FCY/FCY’ transactions - Both the legs of the transactions should be reported in the respective columns. For example in a EUR/USD purchase contract, the EUR amount should be included in the purchase side while the USD amount should be included in the sale side. 5. Transactions with RBI should be included in inter-bank transactions. Transactions with financial institutions other than banks authorised to deal in foreign exchange should be included under merchant transactions. GPB 1. Foreign Currency Balances - Cash balances and investments in all foreign currencies should be converted into US dollars and reported under this head. 2. Net open exchange position- This should indicate the overall overnight net open exchange position of the authorised dealer category-I in Rs. Crore. The net overnight open position should be calculated on the basis of the instructions given in Annex I. 3. Of the above FCY/INR- The amount to be reported is the position against the Rupee- i.e. the net overnight open exchange position less cross currency position, if any. Formats of FTD and GPB Statements FTD Statement showing daily turnover of foreign exchange dated………
GPB Statement showing gaps, position and cash balances as on………..
FOREIGN CURRENCY MATURITY MISMATCH (IN USD MILLION)
[Removed]15 [see Part E , paragraph (iv)] Information relating to exposures in foreign currency as on ___________
Note: AD Category – I banks should submit the above quarterly report as per the revised format online only from quarter ended September 2013 through the Extensible Business Reporting Language (XBRL) system which may be accessed at https://secweb.rbi.org.in/orfsxbrl/. [Removed]16 [Removed]17 [see Part E , paragraph (v)] FCY/Rupee Option transactions For the week ended__________________ A. Option Transaction Report
II. Option Positions Report
Total Net Open Options Position (INR): The total net open options position can be arrived using the methodology prescribed in A. P. (DIR Series) Circular No. 92 dated April 4, 2003. III. Change in Portfolio Delta Report Change in USD-INR delta for a 0.25% change in spot ($-appreciation) in INR terms = Change in USD-INR delta for a 0.25% change in spot ($-depreciation) in INR terms = Similarly, Change in delta for a 0.25% change in spot (FCY appreciation & depreciation separately) in INR terms for other currency pairs, such as EUR-INR, JPY-INR etc. IV. Strike Concentration Report
This report should be prepared for a range of 150 paise around current spot level. Cumulative positions to be given. All amounts in USD million. When the bank owns an option, the amount should be shown as positive. When the bank has sold an option, the amount should be shown as negative. All reports may be sent via e-mail by market-makers. Reports may be prepared as of every Friday and sent by the following Monday. [See Part C, paragraph 5 (a)] Overseas foreign currency borrowings –Report as on ……….. Amount (in equivalent USD* Million)
[Removed]18 [Removed]19 [Removed]20 [Removed]21 [Removed]22 [Removed]23 [Removed]24 [Removed]25 [Removed]26 [Removed]27 Reporting of suspicious transactions undertaken by non-resident importer / exporter – for the quarter ended ___________ Name of the AD Category I Bank –
[See Part A, Section I, Paragraph 2.A.i] User Classification Framework 1. User Classification i. For the purpose of offering derivative contracts to a user, the Authorised Dealer shall classify the user either as a retail user or as a non-retail user. ii. The following users shall be eligible to be classified as non-retail users:
iii. Any user who is not eligible to be classified as a non-retail user shall be classified as a retail user. iv. Any user who is otherwise eligible to be classified as a non-retail user shall have the option to get classified as a retail user. 2. Directions in case of retail users
3. Directions in case of non-retail users
List of Notifications which have been consolidated in the Master Direction - Risk Management and Inter-Bank Dealings List of circulars which have been consolidated in the Master Direction - Risk Management and Inter-Bank Dealings These circulars should be read in conjunction with FEMA, 1999 and the Rules/Regulations/Directions/Orders/Notifications issued thereunder. 1 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 2 A. P. (DIR Series) Circular No. 102 May 21, 2015 3 A. P. (DIR Series) Circular No. 23 dated March 27, 2020 4 A.P. (DIR Series) Circular No. 112 dated June 25, 2015 5 A.P. (DIR Series) Circular No. 15 dated January 06, 2020 6 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 7 A. P. (DIR Series) Circular No. 3 dated August 10, 2017 8 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 9 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 10 A. P. (DIR Series) Circular No. 3 dated August 10, 2017 11 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 12 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 13 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 14 Capital refers to Tier I capital as per instructions issued by Reserve Bank of India (Department of Banking Operations and Development). 15 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 16 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 17 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 18 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 19 RBI/2017-18/138 A.P. (DIR Series) Circular No. 19 dated March 12, 2018 20 RBI/2017-18/138 A.P. (DIR Series) Circular No. 19 dated March 12, 2018 21 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 22 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 23 A.P. (DIR Series) Circular No. 29 dated April 07, 2020 24 RBI/2017-18/138 A.P. (DIR Series) Circular No. 19 dated March 12, 2018 25 RBI/2017-18/138 A.P. (DIR Series) Circular No. 19 dated March 12, 2018 |
RBI/FMRD/2016-17/31 July 5, 2016 All Authorised Dealers - Category I Banks Madam / Sir, Master Direction - Risk Management and Inter-Bank Dealings In exercise of the powers conferred by clause (h) of sub-section (2) of section 47 of the Foreign Exchange Management Act (FEMA), 1999 (42 of 1999), the Reserve Bank has framed regulations to promote orderly development and maintenance of foreign exchange market in India through Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 Notification No. FEMA 25/RB-2000 dated May 3, 2000 and subsequent amendments thereto. Attention is also drawn to provisions in Notification No. FEMA 1/2000-RB, Regulation 4(2) of Notification No. FEMA 3/RB-2000 and subsequent amendments thereto. All of the above govern the Foreign Exchange Derivative Contracts, Overseas Commodity & Freight Hedging, Rupee Accounts of Non-Resident Banks and Inter-Bank Foreign Exchange Dealings etc. These Regulations are amended from time to time to incorporate the changes in the regulatory framework and published through amendment notifications. 2. Within the contours of the Regulations, the Reserve Bank issues directions to Authorised Persons under Section 11 of the Foreign Exchange Management Act (FEMA), 1999. These directions lay down the modalities as to how the foreign exchange business has to be conducted by the Authorised Persons with their customers / constituents with a view to implementing the regulations framed. 3. Instructions issued in respect of Foreign Exchange Derivative Contracts, Overseas Commodity & Freight Hedging, Rupee Accounts of Non-Resident Banks and Inter-Bank Foreign Exchange Dealings etc. have been compiled in this Master Direction. The list of underlying notifications / circulars which form the basis of this Master Direction is furnished in the Appendix. 4. It may be noted that, whenever necessary, Reserve Bank shall issue directions to Authorised Persons through A.P. (DIR Series) Circulars in regard to any change in the Regulations or the manner in which relative transactions are to be conducted by the Authorised Persons with their customers/ constituents. The Master Direction issued herewith shall be amended suitably simultaneously. Yours faithfully, (Dimple Bhandia) PART – A SECTION I Facilities for Persons Resident in India other than Authorised Dealers Category-I The facilities for persons resident in India (other than AD Category I banks) are elaborated under paragraphs A and B. Paragraph A describes the products and operational guidelines for the respective product. In addition to the operational guidelines under A, the general instructions that are applicable across all products for residents (other than AD Category I banks) are detailed under Paragraph B. A. Products and Operational Guidelines The product/purpose-wise facilities for persons resident in India (other than AD Category I banks) are detailed under the following subheads: 1) Contracted Exposure 2) Probable Exposure 3) Special Dispensation 1) Contracted Exposures AD Category I banks have to evidence the underlying documents so that the existence of underlying foreign currency exposure can be clearly established. AD Category I banks, through verification of documentary evidence, should be satisfied about the genuineness of the underlying exposure, irrespective of the transaction being a current or a capital account. Full particulars of the contracts should be marked on the original documents under proper authentication and retained for verification. However, in cases where the submission of original documents is not possible, a copy of the original documents, duly certified by an authorized official of the user, may be obtained. In either of the cases, before offering the contract, the AD Category I banks should obtain an undertaking from the customer and also certificates from the statutory auditor (for details refer para B (b) for General Instructions). While details of the underlying have to be recorded at the time of booking the contract, in the view of logistic issues, a maximum period of 15 days may be allowed for production of the documents. If the documents are not submitted by the customer within 15 days, the contract may be cancelled, and the exchange gain, if any, should not be passed on to the customer. In the event of non-submission of the documents by the customer within 15 days on more than three occasions in a financial year, booking of permissible derivative contracts in future may be allowed only against production of the underlying documents, at the time of booking the contract. The products available under this facility are as follows: i) Forward Foreign Exchange Contracts Participants Market-makers - AD Category I banks Users - Persons resident in India Purpose a) To hedge exchange rate risk in respect of transactions for which sale and /or purchase of foreign exchange is permitted under the FEMA 1999, or in terms of the rules/ regulations/directions/orders made or issued there under. b) To hedge exchange rate risk in respect of the market value of overseas direct investments (in equity and loan). i) Contracts covering overseas direct investment (ODI) can be cancelled or rolled over on due dates. If a hedge becomes naked in part or full owing to contraction (due to price movement/impairment) of the market value of the ODI, the hedge may be allowed to continue until maturity, if the customer so desires. Rollovers on due date shall be permitted up to the extent of the market value as on that date. c) To hedge exchange rate risk of transactions denominated in foreign currency but settled in INR, including hedging the economic (currency indexed) exposure of importers in respect of customs duty payable on imports. i) Forward foreign exchange contracts covering such transactions will be settled in cash on maturity. ii) These contracts once cancelled, are not eligible to be rebooked. iii) In the event of any change in the rate(s) of customs duties, due to Government notifications subsequent to the date of the forward contracts, importers may be allowed to cancel and/or rebook the contracts before maturity. Operational Guidelines, Terms and Conditions General principles to be observed for forward foreign exchange contracts. a) The maturity of the hedge should not exceed the maturity of the underlying transaction. The currency of hedge and tenor, subject to the above restrictions, are left to the customer. Where the currency of hedge is different from the currency of the underlying exposure, the risk management policy of the corporate, approved by the Board of the Directors, should permit such type of hedging. b) Where the exact amount of the underlying transaction is not ascertainable, the contract may be booked on the basis of reasonable estimates. However, there should be periodical review of the estimates. c) Foreign currency loans/bonds will be eligible for hedge only after final approval is accorded by the Reserve Bank, where such approval is necessary or Loan Registration Number is allotted by the Reserve Bank. d) Global Depository Receipts (GDRs)/American Depository Receipts (ADRs) will be eligible for hedge only after the issue price has been finalized. e) Balances in the Exchange Earner's Foreign Currency (EEFC) accounts sold forward by the account holders shall remain earmarked for delivery and such contracts shall not be cancelled. They are, however, eligible for rollover, on maturity. f) In case of contracted exposures, forward contracts, involving Rupee as one of the currencies, in respect of all current account transactions as well as capital account transactions with a residual maturity of one year or less may be freely cancelled and rebooked. g) In case of forward contracts involving Rupee as one of the currencies, booked by residents in respect of all hedge transactions, if cancelled with one AD Category I bank can be rebooked with another AD Category I bank subject to the following conditions: (i) the switch is warranted by competitive rates on offer, termination of banking relationship with the AD Category I bank with whom the contract was originally booked; (ii) the cancellation and rebooking are done simultaneously on the maturity date of the contract; and (iii) the responsibility of ensuring that the original contract has been cancelled rests with the AD Category I bank who undertakes rebooking of the contract. h) Forward contracts can be rebooked on cancellation subject to condition (i) below. i) The facility of rebooking should not be permitted unless the corporate has submitted the exposure information as prescribed in Annex V. j) Substitution of contracts for hedging trade transactions may be permitted by an AD Category I bank on being satisfied with the circumstances under which such substitution has become necessary. The AD Category I bank may also verify the amount and tenor of the underlying substituted. ii) Cross Currency Options (not involving Rupee) Participants Market-makers - AD Category I banks as approved for this purpose by the Reserve Bank Users – Persons resident in India Purpose a) To hedge exchange rate risk arising out of trade transactions. b) To hedge the contingent foreign exchange exposure arising out of submission of a tender bid in foreign exchange. Operational Guidelines, Terms and Conditions
iii) Foreign Currency - INR Options Participants Market-makers - AD Category I banks, as approved for this purpose by the Reserve Bank. Users – Persons resident in India Purpose a) To hedge foreign currency exposures in accordance with Schedule I of Notification No. FEMA 25/2000-RB dated May 3, 2000, as amended from time to time. b) To hedge the contingent foreign exchange exposure arising out of submission of a tender bid in foreign exchange. Operational Guidelines, Terms and Conditions a) AD Category I banks having a minimum CRAR of 9 per cent, can offer foreign currency– INR options on a back-to-back basis. b) For the present, AD category I banks can offer only plain vanilla European options. c) Customers can buy call or put options. d) All guidelines applicable for foreign currency-INR foreign exchange forward contracts are applicable to foreign currency-INR option contracts also. e) AD Category I banks having adequate internal control, risk monitoring/ management systems, mark to market mechanism, etc. are permitted to run a foreign currency– INR options book on prior approval from the Reserve Bank, subject to conditions. AD Category I banks desirous of running a foreign currency-INR options book and fulfilling minimum eligibility criteria listed below, may apply to the Reserve Bank with copies of approval from the competent authority (Board/ Risk Committee/ ALCO), detailed memorandum in this regard, specific approval of the Board for the type of option writing and permissible limits. The memorandum put up to the Board should clearly mention the downside risks, among other matters. Minimum Eligibility Criteria:
The Reserve Bank will consider the application and accord a one-time approval at its discretion. AD Category I banks are expected to manage the option portfolio within the Reserve Bank approved risk management limits. f) AD banks may quote the option premium in Rupees or as a percentage of the Rupee/foreign currency notional. g) Option contracts may be settled on maturity either by delivery on spot basis or by net cash settlement in Rupees on spot basis as specified in the contract. In case of unwinding of a transaction prior to the maturity, the contract may be cash settled based on market value of an identical off-setting option. h) Market makers are allowed to hedge the ‘Delta’ of their option portfolio by accessing the spot and forward markets. Other ‘Greeks’ may be hedged by entering into option transactions in the inter-bank market. i) The ‘Delta’ of the option contract would form part of the overnight open position. j) The ‘Delta’ equivalent as at the end of each maturity shall be taken into account for the purpose of AGL. The residual maturity (life) of each outstanding option contract can be taken as the basis for the purpose of grouping under various maturity buckets. k) AD banks running an option book are permitted to initiate plain vanilla cross currency option positions to cover risks arising out of market making in foreign currency-INR options. l) Banks should put in place necessary systems for marking to market the portfolio on a daily basis. FEDAI will publish daily a matrix of polled implied volatility estimates, which market participants can use for marking to market their portfolio. m) The accounting framework for option contracts will be as per FEDAI circular No.SPL-24/FC-Rupee Options/2003 dated May 29, 2003. iv) Foreign Currency-INR Swaps Participants Market-makers – AD Category I banks in India. For2 entering into swaps with Multilateral (MFI) or International Financial Institutions (IFIs) in which Government of India is a shareholder, refer to para. (g) under operational guidelines, terms and conditions. Users – i. Residents having a foreign currency liability and undertaking a foreign currency-INR swap to move from a foreign currency liability to a Rupee liability. ii. Incorporated resident entities having a rupee liability and undertaking an INR – foreign currency swap (INR-FCY) to move from rupee liability to a foreign currency liability, subject to certain minimum prudential requirements, such as risk management systems and natural hedges or economic exposures. In the absence of natural hedges or economic exposures, the INR-foreign currency swap (to move from rupee liability to a foreign currency liability) may be restricted to listed companies or unlisted companies with a minimum net worth of Rs 200 crore. Further, the AD Category I bank is required to examine the suitability and appropriateness of the swap and be satisfied about the financial soundness of the corporate. Purpose To hedge exchange rate and/or interest rate risk exposure for those having long-term foreign currency borrowing or to transform long-term INR borrowing into foreign currency liability. Operational Guidelines, Terms and Conditions a) No swap transactions involving upfront payment of Rupees or its equivalent in any form shall be undertaken. b) The term “long-term exposure” means exposures with residual maturity of one year or more. c) The swap transactions, once cancelled, shall not be rebooked or re-entered, by whichever mechanism or by whatever name called. In3 case of FCY-INR swaps however, where the underlying is still surviving, the client, on cancellation of the swap contract, may be permitted to re‐enter into a fresh swap, to hedge the underlying but only after the expiry of the tenor of the original swap contract that had been cancelled. This flexibility is not permitted for INR-FCY swaps. d) AD Category I banks should not offer leveraged swap structures. Typically, in leveraged swap structures, a multiplicative factor other than unity is attached to the benchmark rate(s), which alters the payables or receivables vis-à-vis the situation in the absence of such a factor. e) The notional principal amount of the swap should not exceed the outstanding amount of the underlying loan. f) The maturity of the swap should not exceed the remaining maturity of the underlying loan. g) For hedging their long term foreign currency borrowings residents may enter in to FCY-INR swaps with Multilateral or International Financial Institutions (MFI/IFI) in which Government of India is a shareholding member subject to the following terms and conditions in addition to (a) to (f) above:
v) Cost Reduction Structures i.e. cross currency option cost reduction structures and foreign currency –INR option cost reduction structures. Participants Market-makers - AD Category I banks Users – Listed companies and their subsidiaries/joint ventures/associates having common treasury and consolidated balance sheet or unlisted companies with a minimum net worth of Rs. 200 croreprovided
(Note: The above accounting treatment is a transitional arrangement till AS 30 / 32 or equivalent standards are notified.)” Purpose To hedge exchange rate risk arising out of trade transactions, External Commercial Borrowings (ECBs) and foreign currency loans availed of domestically against FCNR (B) deposits. Operational Guidelines, Terms and Conditions
vi) Hedging of Borrowings in foreign exchange, which are in accordance with the provisions of Foreign Exchange Management (Borrowing and Lending in Foreign Exchange) Regulations, 2000. Products – Interest rate swap, Cross currency swap, Coupon swap, Cross currency option, Interest rate cap or collar (purchases), Forward rate agreement (FRA) Participants Market-makers – a) AD Category I banks in India b) Branch outside India of an Indian bank authorized to deal in foreign exchange in India c) Offshore banking unit in a SEZ in India. Users – Persons resident in India who have borrowed foreign exchange in accordance with the provisions of Foreign Exchange Management (Borrowing and Lending in Foreign Exchange) Regulations, 2000. Purpose For hedging interest rate risk and currency risk on loan exposure and unwinding from such hedges. Operational Guidelines, Terms and Conditions
2) Probable exposures based on past performance Participants Market-makers – AD Category I banks in India. Users – Importers and exporters of goods and services Purpose To hedge currency risk on the basis of a declaration of an exposure and based on past performance up to the average of the previous three financial years’ (April to March) actual import/export turnover or the previous year’s actual import/export turnover, whichever is higher. Probable exposure based on past performance can be hedged only in respect of trades in merchandise goods as well as services. Products Forward foreign exchange contracts, cross currency options (not involving the rupee), foreign currency-INR options and cost reduction structures [as mentioned in section B para I 1(v)]. Operational Guidelines, Terms and Conditions a) Corporates having a minimum net worth of Rs 200 crores and an annual export and import turnover exceeding Rs 1000 crores and satisfying all other conditions as stipulated in section B para I 1(v) may be allowed to use cost reduction structures. b) The contracts booked during the current financial year (April-March) and the outstanding contracts at any point of time should not exceed
c) Contracts booked up to 75 percent of the eligible limit mentioned at paragraph (b) (i) and (b) (ii) above may be cancelled with the exporter/importer bearing/being entitled to the loss or gain as the case may be. Contracts booked in excess of 75 percent of the eligible limit mentioned at paragraph (b) (i) and (b) (ii) above shall be on a deliverable basis and cannot be cancelled, implying that in the event of cancellation, the exporter/importer shall have to bear the loss but will not be entitled to receive the gain. d) These limits shall be computed separately for import/export transactions. e) Higher limits will be permitted on a case-by-case basis on application to the Chief General Manager, Financial Markets Regulation Department, Reserve Bank of India, Central Office, 9th Floor, Central Office Building, Shahid Bhagat Singh Road, Fort, Mumbai – 400 001. The additional limits, if sanctioned, shall be on a deliverable basis. f) Any contract booked without producing documentary evidence will be marked off against this limit. These contracts once cancelled, are not eligible to be rebooked. Rollovers are also not permitted. g) AD banks should permit their clients to use the past performance facility only after satisfying themselves that the following conditions are complied with: i. An undertaking may be taken from the customer that supporting documentary evidence will be produced before the maturity of all the contracts booked. ii. Importers and exporters should furnish a quarterly declaration to the AD Category I banks, signed by the Chief Financial Officer (CFO) and the Company Secretary (CS), regarding amounts booked with other AD Category I banks under this facility, as per Annex VI. In the absence of a CS, the Chief Executive Officer (CEO) or the Chief Operating Officer (COO) shall co-sign the undertaking along with the CFO. iii. For an exporter customer to be eligible for this facility, the aggregate of overdue bills shall not exceed 10 per cent of the turnover. iv. Aggregate outstanding contracts in excess of 50 per cent of the eligible limit may be permitted by the AD Category I bank on being satisfied about the genuine requirements of their customers after examination of a document as per the format in Annex VII, signed by the CFO and CS, containing the following:
In the absence of a CS, the CEO or the CFO shall co-sign the undertaking along with the CFO. h) The past performance limits once utilised are not to be reinstated either on cancellation or on maturity of the contracts. i) AD Category I banks must arrive at the past performance limits at the beginning of every financial year. The drawing up of the audited figures (previous year) may require some time at the commencement of the financial year. However, if the statements are not submitted within three months from the last date of the financial year, the facility should not be provided until submission of the audited figures. j) As part of the annual audit exercise, the Statutory Auditor shall certify the following:
k) AD Category I banks must institute appropriate systems for validating the past performance limits at pre-deal stage. In addition to the customer declarations, AD Category I banks should also assess the past transactions with the customers, turnover, etc. l) AD Category I banks are required to submit a monthly report (as on the last Friday of every month) on the limits granted and utilised by their constituents under this facility as prescribed in Annex X. 3) Special Dispensation i) Small and Medium Enterprises (SMEs) Participants Market-makers – AD Category I. Users – Small and Medium Enterprises (SMEs)4 Purpose To hedge direct and / or indirect exposures of SMEs to foreign exchange risk Product Forward foreign exchange contracts Operational Guidelines: Small and Medium Enterprises (SMEs) having direct and / or indirect exposures to foreign exchange risk are permitted to book / cancel / / roll over forward contracts without production of underlying documents to manage their exposures effectively, subject to the following conditions:
ii) Resident Individuals, Firms and Companies Participants Market-makers – AD Category I banks Users: Resident Individuals, Firms and Companies Purpose To hedge their foreign exchange exposures arising out of actual or anticipated remittances, both inward and outward, can book forward contracts, without production of underlying documents, up to a limit of USD 1,000,000 (USD one million), based on self-declaration. Product Forward foreign exchange contracts and FCY-INR options Operational Guidelines, Terms and Conditions a) While the contracts booked under this facility would normally be on a deliverable basis, cancellation and rebooking of contracts are permitted. Based on the track record of the entity, the concerned AD Cat-I bank may, however, call for underlying documents, if considered necessary, at the time of rebooking of cancelled contracts. The notional value of the outstanding contracts should not exceed USD 1,000,000 at any time. b) The contracts may be permitted to be booked up to tenors of one year only. c) Such contracts may be booked through AD Category I banks with whom the resident individual / firm / company has banking relationship, on the basis of an application-cum-declaration in the format given in Annex XV. The AD Category I banks should satisfy themselves that the hedging entities understand the nature of risk inherent in booking of forward contracts or FCY-INR options and should carry out due diligence regarding “user appropriateness” and “suitability” of the forward contracts / FCY-INR options to such customer. iii) Simplified Hedging Facility Users: Resident and non-resident entities, other than individuals. Purpose: To hedge exchange rate risk on transactions, contracted or anticipated, permissible under Foreign Exchange Management Act (FEMA), 19995. Products: Any Over the Counter (OTC) derivative or Exchange Traded Currency Derivative (ETCD) permitted under FEMA, 1999. Cap on Outstanding Contracts: USD 30 million, or its equivalent, on a gross basis. Designated Bank: Any Authorised Dealer Category-I (AD Cat-I) bank designated as such by the user. Operational Guidelines, Terms and Conditions
B. General Instructions for OTC forex derivative contracts entered by Residents in India While the guidelines indicated above govern specific foreign exchange derivatives, certain general principles and safeguards for prudential considerations that are applicable across the OTC foreign exchange derivatives, are detailed below. In addition to the guidelines under the specific foreign exchange derivative product, the general instructions should be followed scrupulously by the users (residents in India other than AD Category I banks) and the market makers (AD Category I banks). For Simplified Hedging Facility, para (a) and (b) below will not be applicable. a) In case of all forex derivative transactions [except INR- foreign currency swaps i.e. moving from INR liability to foreign currency liability as in section B para I(1)(iv)] is undertaken, AD Category I banks must take a declaration from the clients that the exposure is unhedged and has not been hedged with another AD Category I bank. The corporates should provide an annual certificate to the AD Category I bank certifying that the derivative transactions are authorized and that the Board (or the equivalent forum in case of partnership or proprietary firms) is aware of the same. b) In the case of contracted exposure, AD Category I banks must obtain: i) An undertaking from the customer that the same underlying exposure has not been covered with any other AD Category I bank/s. Where hedging of the same exposure is undertaken in parts, with more than one AD Category I bank, the details of amounts already booked with other AD Category I bank/s should be clearly indicated in the declaration. This undertaking can also be obtained as a part of the deal confirmation. ii) An annual certificate from the statutory auditors to the effect that the contracts outstanding with all AD category I banks at any time during the year did not exceed the value of the underlying exposures at that time. It is reiterated, however, that that the AD bank, while entering into any derivative transaction with a client, shall have to obtain an undertaking from the client to the effect that the contracted exposure against which the derivative transaction is being booked has not been used for any derivative transaction with any other AD bank. c) Derived foreign exchange exposures are not permitted to be hedged. However, in case of INR- foreign currency swaps, at the inception, the user can enter into one time plain vanilla cross currency option (not involving Rupee) to cap the currency risk. d) In any derivative contract, the notional amount should not exceed the actual underlying exposure at any point in time. Similarly, the tenor of the derivative contracts should not exceed the tenor of the underlying exposure. The notional amount for the entire transaction over its complete tenor must be calculated and the underlying exposure being hedged must be commensurate with the notional amount of the derivative contract. e) Only one hedge transaction can be booked against a particular exposure/ part thereof for a given time period. f) The term sheet for the derivative transactions (except forward contracts) should also necessarily and clearly mention the following:
g) AD Category I banks can offer only those products that they can price independently. This is also applicable to the products offered even on back to back basis. The pricing of all forex derivative products should be locally demonstrable at all times. h) The market-makers should carry out proper due diligence regarding ‘user appropriateness’ and ‘suitability’ of products before offering derivative products (except forward contracts) to users as detailed in. No.BP.BC. 44 /21.04.157/2011-12 dated November 2, 2011. i) AD Category I may share with the user the various scenario analysis encompassing both the possible upside as well as the downsides and sensitivity analysis identifying the various market parameters that affect the product. j) The provisions of comprehensive guidelines on Derivatives issued vide DBOD.No.BP.BC. 86/21.04.157/2006-07 dated April 20, 2007 and as amended from time to time are also applicable to forex derivatives. k) Sharing of information on derivatives between banks is mandatory and as detailed vide circular DBOD.No.BP.BC.46/08.12.001/2008-09 dated September 19, 2008 and DBOD.No. BP. BC. 94/08.12.001/2008-09 dated December 8, 2008. 4. Currency Futures on recognised Stock /New Exchanges As part of further developing the derivatives market in India and adding to the existing menu of foreign exchange hedging tools available to the residents and non-residents, currency futures contracts have been permitted to be traded in recognized stock exchanges or new exchanges, recognized by the Securities and Exchange Board of India (SEBI) in the country. The currency futures market would function subject to the directions, guidelines, instructions issued by the Reserve Bank and the SEBI, from time to time. Participation in the currency futures market in India is subject to directions contained in the Currency Futures (Reserve Bank) Directions, 2008 [Notification No.FED.1/DG(SG)-2008 dated August 6, 2008] (Directions) and Notification No.FED. 2/ED (HRK)-2009 dated January 19, 2010, as amended7 from time to time, issued by the Reserve Bank of India under Section 45W of the Reserve Bank of India Act, 1934. Currency futures are subject to following conditions: Permission (i) Currency futures are permitted in US Dollar (USD) - Indian Rupee (INR), Euro (EUR)-INR, Japanese Yen (JPY)-INR, Pound Sterling (GBP)-INR, EUR-USD, GBP-USD and USD-JPY. (ii) ‘Persons resident in India’ may purchase or sell currency futures contracts subject to the terms and conditions laid down in paragraph 6 below. (iii) Foreign Portfolio Investors (FPIs) are permitted to enter into currency futures contracts subject to the terms and conditions laid down in Part A, Section II, paragraph no. 2. Features of currency futures Standardized currency futures shall have the following features: a. Foreign Currency-Indian Rupee contracts, viz. USD-INR, EUR-INR, GBP-INR and JPY-INR and Cross Currency contracts (not involving the Indian Rupee), viz. EUR-USD, GBP-USD and USD-JPY are allowed to be traded. b. The size of the USD-INR and USD-JPY contracts shall be USD 1000, of EUR-INR and EUR-USD contracts shall be EUR 1000, of GBP-INR and GBP-USD contracts shall be GBP 1000 and JPY-INR contract shall be JPY 100,000. c. All Foreign Currency-INR contracts shall be quoted and settled in Indian Rupees. EUR-USD and GBP-USD cross currency contracts shall be quoted in USD and USD-JPY contract shall be quoted in JPY. All cross currency contracts shall be settled in Indian Rupees as per the method approved by Reserve Bank. d. The maturity of the contracts shall not exceed 12 months. e. The settlement price for USD-INR shall be the Reserve Bank’s Reference Rate and for Euro-INR, GBP-INR and JPY-INR contracts shall be the exchange rates published by the Reserve Bank in its press release on the last trading day. The settlement price in Indian Rupees of the cross-currency contracts shall be computed using the Reserve Bank’s USD-INR Reference Rate and the corresponding exchange rate published by Reserve Bank for EUR-INR, GBPINR and JPY-INR on the last trading day. Membership (i) The membership of the currency futures market of a recognised stock exchange shall be separate from the membership of the equity derivative segment or the cash segment. Membership for both trading and clearing, in the currency futures market shall be subject to the guidelines issued by the SEBI. (ii) Banks authorized by the Reserve Bank under section 10 of the Foreign Exchange Management Act, 1999 as ‘AD Category - I bank’ are permitted to become trading and clearing members of the currency futures market of the recognized stock exchanges, on their own account and on behalf of their clients, subject to fulfilling the minimum prudential requirements. (iii) AD Category - I banks which do not meet the above minimum prudential requirements and AD Category - I banks which are Urban Co-operative banks or State Co-operative banks can participate in the currency futures market only as clients, subject to approval therefore from the respective regulatory Departments of the Reserve Bank. Position limits i. The position limits for various classes of participants in the currency futures market shall be subject to the guidelines issued by the SEBI. ii. The AD Category - I banks, shall operate within prudential limits, such as Net Open Position (NOP) and Aggregate Gap (AG) limits. Risk Management measures The trading of currency futures shall be subject to maintaining initial, extreme loss and calendar spread margins and the Clearing Corporations / Clearing Houses of the exchanges should ensure maintenance of such margins by the participants on the basis of the guidelines issued by the SEBI from time to time. Surveillance and disclosures The surveillance and disclosures of transactions in the currency futures market shall be carried out in accordance with the guidelines issued by the SEBI. Authorisation to Currency Futures Exchanges / Clearing Corporations Recognized stock exchanges and their respective Clearing Corporations / Clearing Houses shall not deal in or otherwise undertake the business relating to currency futures unless they hold an authorization issued by the Reserve Bank under section 10(1) of the Foreign Exchange Management Act, 1999. 5. Currency Options on recognised Stock /New Exchanges In order to expand the existing menu of exchange traded hedging tools available to the residents and non-residents, plain vanilla currency options contracts have been permitted to be traded in recognized stock exchanges or new exchanges, recognized by the Securities and Exchange Board of India (SEBI) in the country. Exchange traded Currency options are subject to following conditions: Permission (i) Currency option contracts8 are permitted in USD-INR spot rate, EUR-INR spot rate GBP-INR spot rate and JPY-INR spot rate. Cross currency option contracts (not involving the Indian Rupee) are permitted in EUR-USD spot rate, GBP-USD spot rate and the USD-JPY spot rate. (ii) ‘Persons resident in India’ may purchase or sell exchange traded currency options contracts subject to the terms and conditions laid down in paragraph 6 below. (iii) Foreign Portfolio Investors (FPIs) are permitted to enter into exchange traded currency options contracts subject to the terms and conditions laid down in Part A, Section II, paragraph no. 2. Features of exchange traded currency options Standardized exchange traded currency options shall have the following features:
Membership i) Members registered with the SEBI for trading in currency futures market shall be eligible to trade in the exchange traded currency options market of a recognised stock exchange. Membership for both trading and clearing, in the exchange traded currency options market shall be subject to the guidelines issued by the SEBI. ii) Banks authorized by the Reserve Bank under section 10 of the Foreign Exchange Management Act, 1999 as ‘AD Category - I bank’ are permitted to become trading and clearing members of the exchange traded currency options market of the recognized stock exchanges, on their own account and on behalf of their clients, subject to fulfilling the following minimum prudential requirements:
The AD Category - I banks, which fulfil the prudential requirements, should lay down detailed guidelines with the approval of their Boards for trading and clearing of the exchange traded currency options contracts and management of risks. iii) AD Category - I banks, which do not meet the above minimum prudential requirements and AD Category - I banks, which are Urban Co-operative banks or State Co-operative banks, can participate in the exchange traded currency options market only as clients, subject to approval therefor from the respective regulatory Departments of the Reserve Bank. Position limits i) The position limits for various classes of participants for the currency options shall be subject to the guidelines issued by the SEBI. ii) The AD Category - I banks shall operate within prudential limits, such as Net Open Position (NOP) and Aggregate Gap (AG) limits. Risk Management measures The trading of exchange traded currency options shall be subject to maintaining initial, extreme loss and calendar spread margins and the Clearing Corporations / Clearing Houses of the exchanges should ensure maintenance of such margins by the participants on the basis of the guidelines issued by the SEBI from time to time. Surveillance and disclosures The surveillance and disclosures of transactions, in the exchange traded currency options market, shall be carried out in accordance with the guidelines issued by the SEBI. Authorisation to the Exchanges / the Clearing Corporations for dealing in Currency Options Recognized stock exchanges and their respective Clearing Corporations / Clearing Houses shall not deal in or otherwise undertake the business relating to the exchange traded currency options unless they hold an authorisation issued by the Reserve Bank under section 10 (1) of the Foreign Exchange Management Act, 1999. 6. Terms and conditions for residents participating in the Exchange Traded Currency Derivatives (ETCD) a. Persons resident in India may take positions (long or short), without having to establish existence of underlying exposure, upto a single limit of USD 100 million equivalent across all currency pairs involving INR, put together, and combined across all exchanges. b. Residents shall be allowed to take positions in the cross-currency futures and exchange traded cross-currency option contracts without having to establish underlying exposure subject to the position limits as prescribed by the exchanges. c. Domestic participants who want to take a position in excess of limits mentioned at paragraph (a) above in the ETCD market will have to establish the existence of an underlying exposure. The procedure for the same shall be as under:
d. The onus of complying with the provisions of this circular rests with the participant in the ETCD market and in case of any contravention the participant shall be liable to any action that may be warranted as per the provisions of Foreign Exchange Management Act, 1999 and the regulations, directions, etc. issued thereunder. The position limits shall also be monitored by the exchanges, and breaches, if any, may be reported to the Financial Markets Regulation Department, Reserve Bank of India. 7. Commodity Hedging Refer Hedging of Commodity Price Risk and Freight Risk in Overseas Markets (Reserve Bank) Directions (RBI/2017-18/138 A.P. (DIR Series) Circular No. 19 dated March 12, 2018). 8. Freight hedging Refer Hedging of Commodity Price Risk and Freight Risk in Overseas Markets (Reserve Bank) Directions (RBI/2017-18/138 A.P. (DIR Series) Circular No. 19 dated March 12, 2018). SECTION II Facilities for Persons Resident outside India Participants Market-makers – AD Category I banks. Users – Foreign Portfolio Investors(FPIs), Investors having Foreign Direct Investments (FDI), Non Resident Indians (NRIs), Non Resident exporters and importers, Non Residents lenders having ECBs designated in INR. The purpose, products and operational guidelines of each of the users is detailed below: 1. Facilities for Foreign Portfolio Investors (FPIs) Purpose i) To hedge currency risk on the market value of entire investment in equity and/or debt in India as on a particular date. ii) To hedge the coupon receipts arising out of investments in debt securities falling due during the following twelve months. iii) To hedge Initial Public Offers (IPO) related transient capital flows under the Application Supported by Blocked Amount (ASBA) mechanism. Products Forward foreign exchange contracts with rupee as one of the currencies and foreign currency-INR options. Foreign Currency – INR swaps for IPO related flows. Operational Guidelines, Terms and Conditions a) FPIs may approach any AD Category I bank for hedging their currency risk on the market value of entire investment in equity and/or debt in India as on a particular date subject to the following conditions: i. The eligibility for cover may be determined on the basis of a valuation certificate provided by the designated AD category bank along with a declaration by the FPI to the effect that its global outstanding hedges plus the derivatives contracts cancelled across all AD category banks is within the market value of its investments. ii. The FPI should also provide a quarterly declaration to the custodian bank that the total amount of derivatives contract booked across AD Category banks are within the market value of its investments. iii. The hedges taken with AD banks other than designated AD banks have to be settled through the Special Non-Resident Rupee A/c maintained with the designated bank through RTGS/NEFT. iv. If an FPI wishes to enter into a hedge contract for the exposure relating to that part of the securities held by it against which it has issued any PN/ODI, it must have a mandate from the PN/ODI holder for the purpose. Further, while AD Category bank is expected to verify such mandates, in cases where this is rendered difficult, they may obtain a declaration from the FPI regarding the nature/structure of the PN/ODI establishing the need for a hedge operation and that such operations are being undertaken against specific mandates obtained from their clients. b) AD Category I banks may undertake periodic reviews, at least at quarterly intervals, on the basis of market price movements, fresh inflows, amounts repatriated and other relevant parameters to ensure that the forward cover outstanding is supported by underlying exposures. In this context, it is clarified that in case an FPI intends to hedge the exposure of one of its sub-account holders, (cf paragraph 4 of schedule 2 to Notification No. FEMA 20 /2000-RB dated 3rd May 2000) it will be required to produce a clear mandate from the sub-account holder in respect of the latter’s intention to enter into the derivative transaction. Further, the AD Category I banks shall have to verify the mandate as well as the eligibility of the contract vis-a-vis the market value of the securities held in the concerned sub-account. c) If a hedge becomes naked in part or in full owing to contraction of the market value of the portfolio, for reasons other than sale of securities, the hedge may be allowed to continue till the original maturity, if so desired. d) Forward contracts booked by FPIs, once cancelled, can be rebooked up to the extent of 10 per cent of the value of the contracts cancelled. The forward contracts booked may, however, be rolled over on or before maturity. e) Forward contracts booked for hedging coupon receipts as indicated in para. (1)(ii) above shall not be eligible for rebooking on cancellation. They may however be rolled over on maturity provided the relative coupon amount is yet to be received. f) The cost of hedge should be met out of repatriable funds and /or inward remittance through normal banking channel. g) All outward remittances incidental to the hedge are net of applicable taxes. h) For IPO related transient capital flows
i) FPIs and other foreign investor are free to remit funds through any bank of its choice for any transaction permitted under FEMA, 1999 or the Regulations / Directions framed thereunder. The funds thus remitted can be transferred to the designated AD Category -I custodian bank through the banking channel. Note should, however, be taken that KYC in respect of the remitter, wherever required, is a joint responsibility of the bank that has received the remittance as well as the bank that ultimately receives the proceeds of the remittance. While the first bank will be privy to the details of the remitter and the purpose of the remittance, the second bank, will have access to complete information from the recipient's perspective. Besides, the remittance receiving bank is required to issue FIRC to the bank receiving the proceeds to establish the fact the funds had been remitted in foreign currency. 2. Terms and conditions for Foreign Portfolio Investors participating in the Exchange Traded Currency Derivatives (ETCD) [Refer Part A, sub-paragraphs (4) & (5)] Foreign portfolio investors (FPIs) eligible to invest in securities as laid down in Schedules 2, 5, 7 and 8 of the Foreign Exchange Management (Transfer or Issue of Security by a person resident outside India) Regulations, 2000 (FEMA 20/2000-RB dated May 3, 2000 (GSR 406 (E) dated May 3, 2000)) as amended from time to time may enter into currency futures or exchange traded currency options contracts subject to the following terms and conditions: a. FPIs will be allowed access to the currency futures or exchange traded currency options for the purpose of hedging the currency risk arising out of the market value of their exposure to Indian debt and equity securities. b. Such investors can participate in the currency futures / exchange traded options market through any registered / recognised trading member of the exchange concerned. c. FPIs may take positions (long or short), without having to establish existence of underlying exposure, upto a single limit of USD 100 million equivalent across all currency pairs involving INR, put together, and combined across all exchanges. d. FPIs, are allowed to take positions in the cross-currency futures and exchange traded cross-currency option contracts without having to establish underlying exposure subject to the position limits as prescribed by the exchanges. e. An FPI cannot take a short position beyond USD 100 million equivalent across all currency pairs involving INR, put together, and combined across all exchanges. In order to take a long position in excess of these limits, it will be required to have an underlying exposure. The onus of ensuring the existence of an underlying exposure shall rest with the FPI concerned. f. The exchange will, however, be free to impose additional restrictions as prescribed by the Securities and Exchange Board of India (SEBI) for the purpose of risk management and fair trading. g. The exchange/ clearing corporation will provide FPI wise information on day-end open position as well as intra-day highest position to the respective custodian banks. The custodian banks will aggregate the position of each FPI on the exchanges as well as the OTC contracts booked with them (i.e. the custodian banks) and other AD banks. If the total value of the contracts exceeds the market value of the holdings on any day, the concerned FPI shall be liable to such penal action as may be laid down by the SEBI in this regard and action as may be taken by Reserve Bank of India under the Foreign Exchange Management Act (FEMA), 1999. The designated custodian bank will be required to monitor this and bring transgressions, if any, to the notice of RBI / SEBI. h. The onus of complying with the provisions of this circular rests with the participant in the ETCD market and in case of any contravention the participant shall be liable to any action that may be warranted as per the provisions of Foreign Exchange Management Act, 1999 and the regulations, directions, etc. issued thereunder. The position limits shall also be monitored by the exchanges, and breaches, if any, may be reported to the Financial Markets Regulation Department, Reserve Bank of India. 3. Facilities for Non-resident Indians (NRIs) Purpose
Products
4. Terms9 and conditions for Non-Resident Indians (NRIs) participating in the Exchange Traded Currency Derivatives (ETCD) i. NRIs shall designate an AD Cat-I bank for the purpose of monitoring and reporting their combined positions in the OTC and ETCD segments. ii. NRIs may take positions in the currency futures / exchange traded options market to hedge the currency risk on the market value of their permissible (under FEMA, 1999) Rupee investments in debt and equity and dividend due and balances held in NRE accounts. iii. The exchange/ clearing corporation will provide details of all transactions of the NRI to the designated bank. iv. The designated bank will consolidate the positions of the NRI on the exchanges as well as the OTC derivative contracts booked with them and with other AD banks. The designated bank shall monitor the aggregate positions and ensure the existence of underlying Rupee currency risk and bring transgressions, if any, to the notice of RBI / SEBI. v. The onus of ensuring the existence of the underlying exposure shall rest with the NRI concerned. If the magnitude of exposure through the hedge transactions exceeds the magnitude of underlying exposure, the concerned NRI shall be liable to such penal action as may be taken by Reserve Bank of India under the Foreign Exchange Management Act (FEMA), 1999. 5. Facilities for Hedging Foreign Direct Investment in India Purpose
Products Forward foreign exchange contracts with rupee as one of the currencies and foreign currency-INR options. Operational Guidelines, Terms and Conditions a) In respect of contracts to hedge exchange rate risk on the market value of investments made in India, contracts once cancelled are not eligible to be rebooked. The contracts may, however, be rolled over. b) In respect of proposed foreign direct investments, following conditions would apply:
6. Facilities for Hedging Trade Exposures, invoiced in Indian Rupees in India Purpose To hedge the currency risk arising out of genuine trade transactions involving exports from and imports to India, invoiced in Indian Rupees, with AD Category I banks in India. Products Forward foreign exchange contracts with rupee as one of the currencies, foreign currency-INR options. Operational Guidelines, Terms and Conditions The AD Category I banks can opt for either Model I or Model II as given below: Model I Non-resident exporter / importer or its central treasury (of the group and being a group entity)10 dealing through their overseas bank (including overseas branches of AD banks in India) i. Non-resident exporter / importer, or its central treasury approaches his banker overseas with appropriate documents with a request for hedging their Rupee exposure arising out of a confirmed import or export order invoiced in Rupees. ii. The overseas bank in turn approaches its correspondent in India (i.e. the AD bank in India) for a price to hedge the exposure of its customer along with documentation furnished by the customer that will enable the AD bank in India to satisfy itself that there is an underlying trade transaction (scanned copies would be acceptable). The following undertakings also need to be taken from the customer:
iii. A certification on the end client KYC may also be taken as a one-time document from the overseas bank by the AD bank in India. iv. The AD bank in India based on documents received from the overseas correspondent should satisfy itself about the existence of the underlying trade transaction and offer a forward price (no two-way quotes should be given) to the overseas bank who, in turn, will offer the same to its customer. The AD bank, therefore, will ‘not be’ dealing directly with the overseas importer / exporter. v. The amount and tenor of the hedge should not exceed that of the underlying transaction and should be in consonance with the extant regulations regarding tenor of payment / realization of the proceeds. vi. On due date, settlement is to be done through the correspondent bank’s Vostro or the AD bank’s Nostro accounts. vii. The contracts, once cancelled, cannot be rebooked. viii. The contracts may, however, be rolled over on or before maturity subject to maturity of the underlying exposure. ix. On cancellation of the contracts, gains may be passed on to the customer subject to the customer providing a declaration that he is not going to rebook the contract or that the contract has been cancelled on account of cancellation of the underlying exposure. x. In case the underlying trade transaction is extended, rollover can be permitted once based on the extension of the underlying trade transaction for which suitable documentation is to be provided by the overseas bank and the same procedure followed as in case of the original contract. Model II Non-resident exporter / importer or its central treasury (of the group and being a group entity)11 dealing directly with the AD bank in India i. The overseas exporter / importer or its central treasury approaches the AD bank in India with a request for forward cover in respect of underlying transaction for which he furnishes appropriate documentation (scanned copies would be acceptable), on a pre-deal basis to enable the AD bank in India to satisfy itself that there is an underlying trade transaction, and details of his overseas banker, address etc. The following undertakings also need to be taken from the customer
ii. The AD bank may obtain certification of KYC/AML in the format in Annex XVIII. The format can be obtained through the overseas correspondent / bank through SWIFT authenticated message. In case the AD bank has a presence outside India, the AD may take care of the KYC/AML through its bank’s offshore branch. iii. AD banks should evolve appropriate arrangements to mitigate credit risk. Credit limits can be granted based on the credit analysis done by self / the overseas branch. iv. The amount and tenor of the hedge should not exceed that of the underlying transaction and should be in consonance with the extant regulations regarding tenor of payment / realization of the proceeds. v. On due date, settlement is to be done through the correspondent bank’s Vostro or the AD bank’s Nostro accounts. AD banks in India may release funds to the beneficiaries only after sighting funds in Nostro / Vostro accounts. vi. The contracts, once cancelled, cannot be rebooked. vii. The contracts may, however, be rolled over on or before maturity subject to maturity of the underlying exposure. viii. On cancellation of the contracts, gains may be passed on to the customer subject to the customer providing a declaration that he is not going to rebook the contract or that the contract has been cancelled on account of cancellation of the underlying exposure. ix. In case the underlying trade transaction is extended, rollover can be permitted once based on the extension of the underlying trade transaction for which suitable documentation is to be provided by the overseas bank and the same procedure followed as in case of the original contract. x. AD banks shall report hedge contracts booked under this facility to CCIL’s trade repository with a special identification tag12. 7. Facilities for Hedging of ECBs, designated in Indian Rupees, in India I) Purpose: To hedge the currency risk arising out of ECBs designated in INR either directly with AD Category- I banks in India or through their overseas banks on a back to back basis as per operational guidelines, terms and conditions given under (II) below Products Forward foreign exchange contracts with rupee as one of the currencies, foreign currency-INR options and foreign currency-INR swaps. Operational Guidelines, Terms and Conditions i. The foreign equity holder / overseas organisation or individual approaches the AD bank in India with a request for forward cover in respect of underlying transaction for which he needs to furnish appropriate documentation (scanned copies would be acceptable), on a pre-deal basis to enable the AD bank in India to satisfy itself that there is an underlying ECB transaction, and details of his overseas banker, address, etc. The following undertakings also need to be taken from the customer –
ii. The amount and tenor of the hedge should not exceed that of the underlying transaction and should be in consonance with the extant regulations regarding tenor of payment / realization of the proceeds. iii. On due date, settlement is to be done through the correspondent bank’s Vostro or the AD bank’s Nostro accounts. AD banks in India may release funds to the beneficiaries only after sighting funds in Nostro / Vostro accounts. iv. The contracts, once cancelled, cannot be rebooked. v. The contracts may, however, be rolled over on or before maturity subject to maturity of the underlying exposure. vi. On cancellation of the contracts, gains may be passed on to the customer subject to the customer providing a declaration that he is not going to rebook the contract or that the contract has been cancelled on account of cancellation of the underlying exposure. II) Purpose: To hedge the currency risk arising out of ECBs designated in INR extended by recognised non-resident lenders13 with AD Category- I banks in India through their overseas banks on a back to back basis. Products: Foreign currency-INR swaps Operational Guidelines, Terms and Conditions (i) The recognised non-resident lender approaches his overseas bank with appropriate documentation as evidence of an underlying ECB denominated in INR with a request for a swap rate for mobilising INR for onward lending to the Indian borrower. (ii) The overseas bank, in turn, approaches an AD Cat-I bank for a swap rate along with documentation furnished by the customer that will enable the AD bank in India to satisfy itself that there is an underlying ECB in INR (scanned copies would be acceptable). The following undertakings also need to be taken from the customer –
(iii) A KYC certification on the end client shall also be taken by the AD bank in India as a one-time document from the overseas bank. (iv) Based on the documents received from the overseas bank, the AD bank in India should satisfy itself about the existence of the underlying ECB in INR and offer an indicative swap rate to the overseas bank which, in turn, will offer the same to the non-resident lender on a back-to-back basis. (v) The continuation of the swap shall be subject to the existence of the underlying ECB at all times. (vi) On the due date, settlement may be done through the Vostro account of the overseas bank maintained with its correspondent bank in India. (vii) The concerned AD Cat-I bank shall keep on record all related documentation for verification by Reserve Bank. 8. Facility for hedging exposures of Indian subsidiaries14 Users Non-resident parent of an Indian subsidiary or its centralised treasury or its regional treasury outside India. Products All FCY-INR derivatives, OTC as well exchange traded that the Indian subsidiary is eligible to undertake as per FEMA, 1999 and Regulations and Directions issued thereunder. Operational Guidelines, Terms and Conditions
9. Simplified Hedging Facility Users: Resident and non-resident entities, other than individuals. Purpose: To hedge exchange rate risk on transactions, contracted or anticipated, permissible under Foreign Exchange Management Act (FEMA), 199915. Products: Any Over the Counter (OTC) derivative or Exchange Traded Currency Derivative (ETCD) permitted under FEMA, 1999. Cap on Outstanding Contracts: USD 30 million, or its equivalent, on a gross basis. Designated Bank: Any Authorised Dealer Category-I (AD Cat-I) bank designated as such by the user. Operational Guidelines, Terms and Conditions
179A. Non-deliverable derivative contracts (NDDC)
10. Operational Guidelines, Terms and Conditions applicable to all non-residents (except non-residents hedging exposures of Indian subsidiaries at para. 8 above and those hedging under Simplified Hedging Facility and those undertaking Non-deliverable derivative contracts (NDDC)) The operational guidelines as outlined for FPIs would be applicable, with the exception of the provision relating to rebooking of cancelled contracts. All foreign exchange derivative contracts (except NDDCs) permissible for a resident outside India other than a FPI, once cancelled, are not eligible to be rebooked. SECTION III Facilities for Authorised Dealers Category-I 1. Management of Banks’ Assets-Liabilities Users – AD Category I banks Purpose - Hedging of interest rate and currency risks of foreign exchange asset-liability portfolio Products - Interest Rate Swap, Interest Rate Cap/Collar, Currency Swap, Forward Rate Agreement. AD banks may also purchase call or put options to hedge their cross currency proprietary trading positions. Operational Guidelines, Terms and Conditions The use of these instruments is subject to the following conditions:
2. Hedging of Gold Prices Users –
Purpose – To hedge price risk of gold Products - Exchange-traded and over-the-counter hedging products available overseas. Operational Guidelines, Terms and Conditions
3. Hedging of Capital Users – Foreign banks operating in India Product – Forward foreign exchange contracts Operational Guidelines, Terms and Conditions a) Tier I capital -
b) Tier II capital -
4. Participation in the currency futures market in India Please refer to Part-A Section I, paragraph 4. In continuation of the same:
i) Minimum net worth of Rs. 500 crores. ii) Minimum CRAR of 10 per cent. iii) Net NPA should not exceed 3 per cent. iv) Net profit for last 3 years. The AD Category - I banks which fulfill the prudential requirements should lay down detailed guidelines with the approval of their Boards for trading and clearing of currency futures contracts and management of risks. (c). AD Category - I banks which do not meet the above minimum prudential requirements and AD Category - I banks which are Urban Co-operative banks or State Co-operative banks can participate in the currency futures market only as clients, subject to approval and directions from the respective regulatory Departments of the Reserve Bank. (d) The AD Category - I banks, shall operate within prudential limits, such as Net Open Position (NOP) and Aggregate Gap (AG) limits. The exposure of the banks, on their own account, in the currency futures market shall form part of their NOP and AG limits. 5. Participation in the exchange traded currency options market in India Please refer to Part-A Section I, paragraph 5. In continuation of the same: a) AD Category - I banks are permitted to become trading and clearing members of the exchange traded currency options market of the recognized stock exchanges, on their own account and on behalf of their clients, subject to fulfilling the following minimum prudential requirements:
The AD Category - I banks, which fulfil the prudential requirements, should lay down detailed guidelines with the approval of their Boards for trading and clearing of the exchange traded currency options contracts and management of risks. b) AD Category - I banks, which do not meet the above minimum prudential requirements and AD Category - I banks, which are Urban Co-operative banks or State Co-operative banks, can participate in the exchange traded currency options market only as clients, subject to approval therefor from the respective regulatory Departments of the Reserve Bank. c) The AD Category - I banks shall operate within prudential limits, such as Net Open Position (NOP) and Aggregate Gap (AG) limits. The option position of the banks, on their own account, in the exchange traded currency options shall form part of their NOP and AG limits. 6. Operational Guidelines, terms and conditions for AD Category-I banks participation in the ETCD market (a) AD Category-I banks may undertake trading in all permitted exchange traded currency derivatives within their Net Open Position Limit (NOPL) subject to limits stipulated by the exchanges (for the purpose of risk management and preserving market integrity) provided that any synthetic USD-INR position created using a combination of exchange traded FCY- INR and cross-currency contracts shall have to be within the position limit prescribed by the exchange for the USD-INR contract. (b) AD Category-I banks may net / offset their positions in the ETCD market against the positions in the OTC derivatives markets. Keeping in view the volatility in the foreign exchange market, Reserve Bank may however stipulate a separate sub-limit of the NOPL (as a percentage thereof) exclusively for the OTC market as and when required. PART B ACCOUNTS OF NON-RESIDENT BANKS 1. General (i) Credit to the account of a non-resident bank is a permitted method of payment to non-residents and is, therefore, subject to the regulations applicable to transfers in foreign currency. (ii) Debit to the account of a non-resident bank is in effect an inward remittance in foreign currency. 2. Rupee Accounts of Non-Resident Banks AD Category I banks may open/close Rupee accounts (non-interest bearing) in the names of their overseas branches or correspondents without prior reference to the Reserve Bank. Opening of Rupee accounts in the names of branches of Pakistani banks operating outside Pakistan requires specific approval of the Reserve Bank. 3. Funding of Accounts of Non-resident Banks (i) AD Category I banks may freely purchase foreign currency from their overseas correspondents/branches at on-going market rates to lay down funds in their accounts for meeting their bonafide needs in India. (ii) Transactions in the accounts should be closely monitored to ensure that overseas banks do not take a speculative view on the Rupee. Any such instances should be notified to the Reserve Bank. NOTE: Forward purchase or sale of foreign currencies against Rupees for funding is prohibited. Offer of two-way quotes in Rupees to non-resident banks is also prohibited. 4. Transfers from other Accounts Transfer of funds between the accounts of the same bank or different banks is freely permitted. 5. Conversion of Rupees into Foreign Currencies Balances held in Rupee accounts of non-resident banks may be freely converted into foreign currency. All such transactions should be recorded in Form A2 and the corresponding debit to the account should be in form A3 under the relevant Returns. 6. Responsibilities of Paying and Receiving Banks In the case of credit to accounts the paying banker should ensure that all regulatory requirements are met and are correctly furnished in form A1/A2 as the case may be. 7. Refund of Rupee Remittances Requests for cancellation or refund of inward remittances may be complied with without reference to Reserve Bank after satisfying themselves that the refunds are not being made in cover of transactions of compensatory nature. 8. Overdrafts / Loans to Overseas Branches/ Correspondents (i) AD Category I banks may permit their overseas branches/ correspondents temporary overdrawals not exceeding Rs.500 lakhs in aggregate, for meeting normal business requirements. This limit applies to the amount outstanding against all overseas branches and correspondents in the books of all the branches of the authorised AD Category I bank in India. This facility should not be used to postpone funding of accounts. If overdrafts in excess of the above limit are not adjusted within five days a report should be submitted to the Chief General Manager, Financial Markets Regulation Department, Reserve Bank of India, Central Office, 9th Floor, Central Office Building, Shahid Bhagat Singh Road, Fort, Mumbai – 400 001 within 15 days from the close of the month, stating the reasons thereof. Such a report is not necessary if arrangements exist for value dating. (ii) AD Category I bank wishing to extend any other credit facility in excess of (i) above to overseas banks should seek prior approval from the Chief General Manager, Financial Markets Regulation Department, Reserve Bank of India, Central Office. 9. Rupee Accounts of Exchange Houses Opening of Rupee accounts in the names of Exchange Houses for facilitating private remittances into India requires approval of the Reserve Bank. Remittances through Exchange Houses for financing trade transactions are permitted upto Rs.15,00,000 per transaction18. PART C INTER-BANK FOREIGN EXCHANGE DEALINGS 1. General The Board of Directors of AD Category I banks should frame an appropriate policy and fix suitable limits for various Treasury functions. 2. Position and Gaps The net overnight open exchange position (Annex-I) and the aggregate gap limits should be communicated to the Reserve Bank soon after the approval of the Board / Management Committee. 3. Inter-bank Transactions Subject to compliance with the provisions of paragraphs 1 and 2, AD Category I banks may freely undertake foreign exchange transactions as under: a) With AD Category I banks in India: (i) Buying/Selling/Swapping foreign currency against Rupees or another foreign currency. (ii) Placing/Accepting deposits and Borrowing/Lending in foreign currency. b). With banks overseas and Off-shore Banking Units in Special Economic Zones (i) Buying/Selling/Swapping foreign currency against another foreign currency to cover client transactions or for adjustment of own position, (ii) Initiating trading positions in the overseas markets. NOTE : A. Funding of accounts of Non-resident banks - please refer to paragraph 3 of Part B. B. Form A2 need not be completed for sales in the inter-bank market, but all such transactions shall be reported to Reserve Bank in R Returns. 193A. Transaction in Non-deliverable derivative contracts (NDDC) Authorised dealers having an IFSC Banking Unit (IBU) (as specified in circular no.RBI/2014-15/533.DBR.IBD.BC.14570/23.13.004/2014-15 dated April 1, 2015 (as amended from time to time)) may transact in Non-deliverable derivative contracts (NDDCs) with other AD Category 1 banks having IBUs and banks overseas. Banks can undertake such transactions through their IBUs or through their branches in India or through their foreign branches (in case of foreign banks operating in India, through any branch of the parent bank).4. Foreign Currency Accounts/ Investments in Overseas Markets (i) Inflows into foreign currency accounts arise primarily from client-related transactions, swap deals, deposits, borrowings, etc. AD Category I banks may maintain balances in foreign currencies up to the levels approved by the Board. They are free to manage the surplus in these accounts through overnight placement and investments with their overseas branches/correspondents subject to adherence to the gap limits approved by the Reserve Bank. (ii) AD Category I banks are free to undertake investments in overseas markets up to the limits approved by their Board. Such investments may be made in overseas money market instruments and/or debt instruments issued by a foreign state with a residual maturity of less than one year and rated at least as AA (-) by Standard & Poor / FITCH IBCA or Aa3 by Moody's. For the purpose of investments in debt instruments other than the money market instruments of any foreign state, bank's Board may lay down country ratings and country - wise limits separately wherever necessary. NOTE: For the purpose of this clause, 'money market instrument' would include any debt instrument whose life to maturity does not exceed one year as on the date of purchase. (iii) AD Category I banks may also invest the un-deployed FCNR (B) funds in overseas markets in long-term fixed income securities subject to the condition that the maturity of the securities invested in do not exceed the maturity of the underlying FCNR (B) deposits. (iv) Foreign currency funds representing surpluses in the nostro accounts may be utilised for: a) making loans to resident constituents for meeting their foreign exchange requirements or for the Rupee working capital/capital expenditure needs of exporters/ corporates who have a natural hedge or a risk management policy for managing the exchange risk subject to the prudential/interest-rate norms, credit discipline and credit monitoring guidelines in force. b) extending credit facilities to Indian wholly owned subsidiaries/ joint ventures abroad in which at least 51 per cent equity is held by a resident company, subject to the guidelines issued by Reserve Bank (Department of Banking Regulation). (v) AD Category I banks may write-off/transfer to unclaimed balances account, un-reconciled debit/credit entries as per instructions issued by Department of Banking Regulation, from time to time. 5. Loans/Overdrafts a) All categories of overseas foreign currency borrowings of AD Category I banks, (except for borrowings at (c) below), including existing External Commercial Borrowings and loans/overdrafts from their Head Office, overseas branches and correspondents outside India, International / Multilateral Financial Institutions [see (e) below] or any other entity as permitted by Reserve Bank of India and overdrafts in nostro accounts (not adjusted within five days), shall not exceed 100 per cent of their unimpaired Tier I capital or USD 10 million (or its equivalent), whichever is higher subject to conditions laid down in (f) below. The aforesaid limit applies to the aggregate amount availed of by all the offices and branches in India from all their branches/correspondents abroad and also includes overseas borrowings in gold for funding domestic gold loans (cf. DBOD circular No.IBD.BC.33/23.67.001/2005-06 dated September 5, 2005). If drawals in excess of the above limit are not adjusted within five days, a report, as per the format in Annex-VIII, should be submitted to the Chief General Manager, Financial Markets Regulation Department, Reserve Bank of India, Central Office, 9th Floor, Central Office Building, Shahid Bhagat Singh Road, Fort, Mumbai – 400 001, within 15 days from the close of the month in which the limit was exceeded. Such a report is not necessary if arrangements exist for value dating. b) The funds so raised may be used for purposes other than lending in foreign currency to constituents in India and repaid without reference to the Reserve Bank. As an exception to this rule, AD Category I banks are permitted to use borrowed funds as also foreign currency funds received through swaps for granting foreign currency loans for export credit in terms of IECD Circular No 12/04.02.02/2002-03 dated January 31, 2003. Any fresh borrowing above this limit shall be made only with the prior approval of the Reserve Bank. Applications for fresh ECBs should be made as per the current ECB Policy. c) The following borrowings would continue to be outside the limit of 100 per cent of unimpaired Tier I capital or USD 10 million (or its equivalent), whichever is higher: i).Overseas borrowings by AD Category I banks for the purpose of financing export credit subject to the conditions prescribed in DBOD Master Circular dated July 2, 2015 on Rupee / Foreign Currency Export Credit & Customer Service To Exporters. ii).Subordinated debt placed by head offices of foreign banks with their branches in India as Tier II capital. iii) Capital funds raised/augmented by the issue of Innovative Perpetual Debt Instruments and Debt Capital Instruments, in foreign currency, in terms of Circulars DBOD. No. BP.BC.57/21.01.002/2005-06 dated January 25, 2006, DBOD. No. BP.BC.23/21.01.002/2006-07 dated July 21, 2006 and Perpetual Debt Instruments and Debt Capital Instruments in foreign currency issued in terms of circular DBOD.No.BP.BC.98/21.06.201/2011-12 dated May 2, 2012. iv) Any other overseas borrowing with the specific approval of the Reserve Bank. d) Interest on loans/overdrafts may be remitted (net of taxes) without the prior approval of Reserve Bank. e) 20AD category-I banks may borrow only from International / Multilateral Financial Institutions in which Government of India is a shareholding member or which have been established by more than one government or have shareholding by more than one government and other international organizations. f) The borrowings beyond 50 per cent of unimpaired Tier I capital of AD Category – I banks will be subject to the following conditions: (i) The bank should have a Board approved policy on overseas borrowings which shall contain the risk management practices that the bank would adhere to while borrowing abroad in foreign currency. (ii) The bank should maintain a CRAR of 12.0 per cent. (iii) The borrowings beyond the existing ceiling shall be with a minimum maturity of three years. (iv) All other existing norms (FEMA regulations, NOPL norms, etc) shall continue to be applicable. 216. Customer and inter-bank transactions beyond onshore market hours Authorised dealers may undertake customer (persons resident in India and persons resident outside India) and inter-bank transactions beyond onshore market hours. Transactions with persons resident outside India, through their foreign branches and subsidiaries may also be undertaken beyond onshore market hours. PART-D Writing of Covered Call and Put Currency Option contracts by Indian exporters and importers of goods and services22 Participants a. Market-makers: AD Category-I banks in India who have Reserve Bank’s approval to run cross-currency and foreign currency-Indian Rupee options books. b. Users: Listed companies and their subsidiaries/joint ventures/associates having common treasury and consolidated balance sheet or unlisted companies with a minimum net worth of Rs. 200 crore provided appropriate disclosures are made in the financial statements as prescribed by the Institute of Chartered Accountants of India (ICAI). 2. Product a. Covered Call: A resident exporter may write (sell) a standalone plain vanilla European call option contract to an AD Category-I bank in India against the cover of contracted exposure arising out of exports of goods and services from India. b. Covered Put: A resident importer may write (sell) a standalone plain vanilla European put option contract to an AD Category-I bank in India against the cover of contracted exposure arising out of imports of goods and services into India. c. The use of Covered option shall not be considered as a hedging strategy. d. Being a combination of an underlying cash instrument and a generic derivative product, covered call and covered put options shall be treated as structured derivative products in terms of the Comprehensive Guidelines on Derivatives issued vide Circular DBOD.No.BP.BC. 86/21.04.157/2006-07 dated April 20, 2007, as amended from time to time. Operational guidelines, terms and conditions a. All the guidelines governing derivative products in general and structured products in particular of the circular mentioned in para. (2)(d) above and subsequent amendments thereof will apply, mutatis mutandis, to covered options. b. AD Category-I banks may enter into covered options with their exporter or importer constituents only after obtaining specific approval in this regard from their competent authority (Board / Risk Committee / ALCO) as per the guidelines on running Cross Currency and Foreign Currency – INR options book mentioned in Part-A, Section I of this Master Direction. c. The responsibility of assessing the strength of risk management systems, financial soundness of the option writer shall rest with the concerned AD Cat-I bank. AD Category I banks may stipulate safeguards, such as, continuous profitability, higher net worth, turnover, etc. depending on the scale of forex operations and risk profile of the option writers. d. Covered options may be written against either a portion or the full value of the underlying. e. AD Cat-I banks shall treat the exposures against which a covered option has been written as an “unhedged exposure”. Accordingly, the guidelines issued vide Reserve Bank Circular DBOD.No.BP.BC. 85/21.06.200/2013-14 dated January 15, 2014 on Capital and Provisioning Requirements for Exposures to entities with Unhedged Foreign Currency Exposure shall apply. f. Covered option contracts may be written for a period up to the maturity of the underlying subject to a maximum maturity period of 12 month. g. Covered options may be freely cancelled and rebooked subject to the verification of the underlying by the AD Cat-I bank concerned. h. For eligible underlying contracted exposures, the option seller may write the covered option either as a single FCY-INR option or as separate options for the FCYUSD and USD-INR legs. i. The operational guidelines and terms and conditions as laid down under “Contracted Exposures” – Forward Foreign Exchange Contracts, Cross Currency Options (not involving Rupee) and Foreign Currency-INR Options in Part – A, Section I (A) of this Master Direction shall be applicable to covered options to the extent relevant. j. Except as mentioned in these guidelines, covered options shall not be undertaken in combination with any other derivative or cash instrument. k. As provided under Comprehensive Guidelines on Derivatives, as amended from time to time, authorised dealers may maintain cash margin / liquid collateral in respect of covered options sold to them by exporters and importers, if necessary. l. AD Cat-I banks entering into covered options with their constituents may report the same to CCIL’s reporting platform for OTC foreign exchange derivatives in terms of our circular FMD.MSRG.No.75/02.05.002/2012-13 dated March 13, 2013, as amended from time to time. 4. In addition to the above, “General Instructions for OTC forex derivative contracts entered by Residents in India,” as laid down under Section (I)(B) in Part-A of this Master Direction shall be applicable, mutatis mutandis, to covered options. PART E i) The Head/Principal Office of each AD Category-I banks should submit daily statements of Foreign Exchange Turnover in Form FTD and Gaps, Position and Cash Balances in Form GPB through the Online Returns Filing System (ORFS) as per the format given in Annex-II. ii) [Removed]23 iii) AD Category-I banks should consolidate the data on cross currency derivative transactions undertaken by residents and submit half-yearly reports (June and December) as per the format given in Annex-IV. The report may also be forwarded by e-mail so as to reach the Department by the 10th of the following month. iv) AD Category-I banks should forward details of exposures in foreign exchange as at the end of every quarter as per the format given in Annex-V. ADs should submit this report as per the revised format online only from quarter ended September 2013 through the Extensible Business Reporting Language (XBRL) system which may be accessed at https://secweb.rbi.org.in/orfsxbrl/. AD Category – I banks which require login ID / passwords for accessing XBRL system may submit their e-mail addresses and contact numbers to e-mail. Please note that details of exposures of all corporate clients who meet the prescribed criteria have to be included in the report. The AD banks should submit this report based on bank's books and not based on corporate returns. v) Authorised Dealers Category I should forward details of option transactions (FCY-INR) undertaken on a weekly basis as per the format given in Annex VIII. The report may also be forwarded by e-mail so as to reach the Department by the 10th of the following month. vi) AD Category-I banks have to report their total outstanding foreign currency borrowings under all categories as on the last Friday of every month as per the format given in Annex-IX. The report should be received by the 10th of the following month. The report may also be forwarded by e-mail so as to reach the Department by the 10th of the following month. vii) AD Category-I banks are required to submit a monthly report (as on the last Friday of every month) on the limits granted and utilized by their constituents under the facility of booking forward contracts on past performance basis, as per the format given in Annex-X. The report may also be forwarded by e-mail so as to reach the Department by the 10th of the following month. viii) The Head/Principal Office of each AD Category-I banks should submit a statement in form BAL giving details of their holdings of all foreign currencies on fortnightly basis through the web portal at https://bop.rbi.org.in as per the format given in Annex III24 within seven calendar days from the close of the reporting period to which it relates. ix) A monthly statement should be furnished before the 10th of the succeeding month, in respect of cover taken by FPI, indicating the name of the FPI / fund, the eligible amount of cover, the actual cover taken, etc. as per the format in Annex XIII. The report may also be forwarded by e-mail so as to reach the Department by the 10th of the following month. x) The Head/Principal Office of each AD Category-I banks should furnish an up-to-date list (in triplicate) of all its offices/branches, which are maintaining Rupee accounts of non-resident banks as at the end of December every year giving their code numbers allotted by Reserve Bank. The list should be submitted before 15th January of the following year. The offices/branches should be classified according to area of jurisdiction of Reserve Bank Offices within which they are situated. The report may also be forwarded by e-mail so as to reach the Department by the 10th of the following month. xi) AD Category – I banks are required to submit a quarterly report on the forward contracts booked & cancelled by SMEs and Resident Individuals, Firms and Companies within the first week of the following month, as per format given in Annex XIV. The report may also be forwarded by e-mail so as to reach the Department by the 10th of the following month. xii) Authorised Dealers should consolidate the data on the transactions undertaken by non-residents under the scheme and submit quarterly reports as per the format indicated in the Annex XIX. The report may also be forwarded by e-mail so as to reach the Department by the 10th of the following month. xiii) Authorised Dealers should report on a quarterly basis, doubtful transactions involving frequent cancellation of hedge transactions and / or the underlying trade transactions by non-residents under the scheme as per the format indicated in the Annex XX. The report may also be forwarded by e-mail so as to reach the Department by the 10th of the following month. Reports are to be sent to The Chief General Manager, Financial Markets Regulation Department Reserve Bank of India, Central Office, 9th Floor, Central Office Building, Shahid Bhagat Singh Road, Fort, Mumbai - 400 001 unless otherwise specified. Reports may be sent preferably through e-mail. [See Part C, Paragraph 2] A. Guidelines for Foreign Exchange Exposure Limits of Authorised Dealers Category – I The Foreign Exchange Exposure Limits of Authorised Dealers would be dual in nature.
For banks incorporated in India, the exposure limits fixed by the Board should be the aggregate for all branches including their overseas branches and Off-shore Banking Units. For foreign banks, the limits will cover only their branches in India. i. Net Overnight Open Position Limit (NOOPL) for calculation of capital charge on forex risk NOOPL may be fixed by the boards of the respective banks and communicated to the Reserve Bank immediately. However, such limits should not exceed 25 percent of the total capital (Tier I and Tier II capital) of the bank. The Net Open position may be calculated as per the method given below: 1. Calculation of the Net Open Position in a Single Currency The open position must first be measured separately for each foreign currency. The open position in a currency is the sum of (a) the net spot position, (b) the net forward position and (c) the net options position. a) Net Spot Position The net spot position is the difference between foreign currency assets and the liabilities in the balance sheet. This should include all accrued income/expenses. b) Net Forward Position This represents the net of all amounts to be received less all amounts to be paid in the future as a result of foreign exchange transactions which have been concluded. These transactions, which are recorded as off-balance sheet items in the bank's books, would include:
c) Net Options Position The options position is the "delta-equivalent" spot currency position as reflected in the authorized dealer's options risk management system, and includes any delta hedges in place which have not already been included under 1(a) or 1(b) (i) and (ii) above. 2. Calculation of the Overall Net Open Position This involves measurement of risks inherent in a bank's mix of long and short position in different currencies. It has been decided to adopt the "shorthand method" which is accepted internationally for arriving at the overall net open position. Banks may, therefore, calculate the overall net open position as follows: i. Calculate the net open position in each currency (paragraph 1 above). ii. Calculate the net open position in gold. iii. Convert the net position in various currencies and gold into Rupees in terms of existing RBI / FEDAI Guidelines. All derivative transactions including forward exchange contracts should be reported on the basis of Present Value (PV) adjustment. iv. Arrive at the sum of all the net short positions. v. Arrive at the sum of all the net long positions. Overall net foreign exchange position is the higher of (iv) or (v). The overall net foreign exchange position arrived at as above must be kept within the limit approved by the bank’s Board. Note: Authorised Dealer banks should report all derivative transactions including forward exchange contracts on the basis of PV adjustment for the purpose of calculation of the net open position. Authorised Dealer banks may select their own yield curve for the purpose of PV adjustments. The banks however should have an internal policy approved by its ALCO regarding the yield curve/(s) to be used and apply it on a consistent basis. 3. Offshore exposures For banks with overseas presence, the offshore exposures should be calculated on a standalone basis as per the above method and should not be netted with onshore exposures. The aggregate limit (on-shore + off-shore) may be termed Net Overnight open Position (NOOP) and will be subjected to capital charge. Accumulated surplus of foreign branches need not be reckoned for calculation of open position. An illustrative example is as follows: If a bank has, let us say three foreign branches and the three branches have open position as below- Branch A: + Rs 15 crores Branch B: + Rs 5 crores Branch C: - Rs 12 crores The open position for the overseas branches taken together would be Rs 20 crores. 4. Capital25 Requirement As prescribed by the Reserve Bank from time to time 5. Other Guidelines i. ALCO / Internal Audit Committee of the Authorized Dealers should monitor the utilization of and adherence to the limits. ii. Authorized Dealers should also have a system in place to demonstrate, whenever required, the various components of the NOOP as prescribed in the guidelines for verification by Reserve Bank. iii. Transactions undertaken by Authorized Dealers till the end of business day may be computed for calculation of Foreign Exchange Exposure Limits. The transactions undertaken after the end of business day may be taken into the positions for the next day. The end of day time may be approved by the bank’s Board. ii. Limit for positions involving Rupee as one of the currencies (NOP-INR) for exchange rate management
B. Aggregate Gap Limits (AGL) i. AGL may be fixed by the boards of the respective banks and communicated to the Reserve Bank immediately. However, such limits should not exceed 6 times the total capital (Tier I and Tier II capital) of the bank. ii. However, Authorised Dealers which have instituted superior measures such as tenor wise PV01 limits and VaR to aggregate foreign exchange gap risks are allowed to fix their own PV01 and VaR limits based on their capital, risk bearing capacity etc. in place of AGL and communicate the same to the Reserve Bank. The procedure and calculation of the limit should be clearly documented as an internal policy and strictly adhered to. [see Part E, paragraph (i)] Reporting of Forex Turnover Data - FTD and GPB The guidelines and formats for preparation of the FTD and GPB reports are given below. AD Category-I banks may ensure that the reports are properly compiled on the basis of these guidelines: The data for a particular date has to reach us by the close of business of the following working day. FTD 1. SPOT - Cash and tom transactions are to be included under ‘Spot’ transactions. 2. SWAP - Only foreign exchange swaps between authorised dealers category-I should be reported under swap transactions. Long term swaps (both cross currency and foreign currency-Rupee swaps) should not be included in this report. Swap transactions should be reported only once and should not be included under either the ‘spot’ or ‘forward’ transactions. Buy/Sell swaps should be included in the ‘Purchase’ side under ‘Swaps’ while Sell/buy swaps should figure on the ‘Sale’ side. 3. Cancellation of forwards - The amount required to be reported under cancellation of forward contracts against purchases from merchants should be the aggregate of cancelled forward merchant sale contracts by authorised dealers category-I (adding to the supply in the market). On the sale side of cancelled forward contracts, aggregate of the cancelled forward purchase contracts should be indicated (adding to the demand in the market). 4 ‘FCY/FCY’ transactions - Both the legs of the transactions should be reported in the respective columns. For example in a EUR/USD purchase contract, the EUR amount should be included in the purchase side while the USD amount should be included in the sale side. 5. Transactions with RBI should be included in inter-bank transactions. Transactions with financial institutions other than banks authorised to deal in foreign exchange should be included under merchant transactions. GPB 1. Foreign Currency Balances - Cash balances and investments in all foreign currencies should be converted into US dollars and reported under this head. 2. Net open exchange position- This should indicate the overall overnight net open exchange position of the authorised dealer category-I in Rs. Crore. The net overnight open position should be calculated on the basis of the instructions given in Annex I. 3. Of the above FCY/INR- The amount to be reported is the position against the Rupee- i.e. the net overnight open exchange position less cross currency position, if any. Formats of FTD and GPB Statements FTD Statement showing daily turnover of foreign exchange dated………
GPB Statement showing gaps, position and cash balances as on………..
FOREIGN CURRENCY MATURITY MISMATCH (IN USD MILLION)
[see Part E, paragraph (iii)] Cross- currency derivative transactions statement
[see Part E , paragraph (iv)] Information relating to exposures in foreign currency as on ___________
Note: AD Category – I banks should submit the above quarterly report as per the revised format online only from quarter ended September 2013 through the Extensible Business Reporting Language (XBRL) system which may be accessed at https://secweb.rbi.org.in/orfsxbrl/. [See Part A Section 1 paragraph 2(g)(ii)] Format of Declaration of amounts booked/cancelled under Past Performance facility [On letterhead of the Company] Date : To, (Name and address of the Bank) Dear Sir, Sub : Declaration of amounts booked/cancelled under Past Performance facility We refer to the facility of booking of Forward or Option Contracts involving Foreign Exchange, based on the past performance facility with Authorised Dealer Category I Banks (AD Category I Banks), more specifically in relation to the undertaking submitted by us to you, dated [ ] in this regard ("Undertaking"). In accordance with the said Undertaking, we hereby furnish a declaration regarding the amounts of the transactions booked by us with all AD Category I banks. We are availing the past performance limit with the following AD Category I banks : …………………………………. Please find below the information regarding amounts booked / cancelled with all AD Category I Banks under the said past performance facility as permitted under the FEMA Regulations :
Thanking you, Yours faithfully, For XXXXXX (Chief Financial Officer) [See Part A, Section I, paragraph 2(g)(iv)] Format for Declaration for utilization of past performance limits in excess of 50 per cent and details of import / export turnover, overdues, etc. [On letterhead of the Company] To, Dear Sir, Sub: Declaration for utilisation of past performance limits in excess of 50 per cent and details of import / export turnover, overdues, etc.
Yours faithfully, For XXXXXX (Chief Financial Officer) [see Part E , paragraph (v)] FCY/Rupee Option transactions For the week ended__________________ A. Option Transaction Report
II. Option Positions Report
Total Net Open Options Position (INR): The total net open options position can be arrived using the methodology prescribed in A. P. (DIR Series) Circular No. 92 dated April 4, 2003. III. Change in Portfolio Delta Report Change in USD-INR delta for a 0.25% change in spot ($-appreciation) in INR terms = Change in USD-INR delta for a 0.25% change in spot ($-depreciation) in INR terms = Similarly, Change in delta for a 0.25% change in spot (FCY appreciation & depreciation separately) in INR terms for other currency pairs, such as EUR-INR, JPY-INR etc. IV. Strike Concentration Report
This report should be prepared for a range of 150 paise around current spot level. Cumulative positions to be given. All amounts in USD million. When the bank owns an option, the amount should be shown as positive. When the bank has sold an option, the amount should be shown as negative. All reports may be sent via e-mail by market-makers. Reports may be prepared as of every Friday and sent by the following Monday. [See Part C, paragraph 5 (a)] Overseas foreign currency borrowings –Report as on ……….. Amount (in equivalent USD* Million)
[Removed]26 [Removed]27 [see Part A ,Section II, paragraph 1] Statement – Details of Forward cover undertaken by FPI clients Month – Part A – Details of forward cover (without rebooking) outstanding Name of FPI Current Market Value (USD mio)
Part B – Details of transactions permitted to be cancelled and rebooked Name of FPI Market Value as determined at start of year (USD mio)
Name of the AD Category – I bank: Signature of the Authorised official: Date : Stamp : [A. P. (DIR Series) Circular No. 15, dated October 29, 2007 & A.P. (DIR Series) Circular No. 20 , dated October 8, 2015] [see Part A, Section I, para 3(ii)(c)] Application cum Declaration for booking of forward contracts / options up to USD 1,000,000 by Resident Individuals, Firms and Companies (To be completed by the applicant) I. Details of the applicant a. Name ………………………….. b. Address………………………… c. Account No…………………….. d. PAN No…………………………. II. Details of the foreign exchange forward / FCY-INR options contracts required 1. Amount (Specify currency pair) ……………………………… 2. Tenor …………………………………………………. III. Notional value of forward / FCY-INR contracts outstanding as on date ………. IV. Details of actual / anticipated remittances 1. Amount: 2. Remittance Schedule: 3. Purpose: Declaration I, ………………. …………(Name of the applicant), hereby declare that the total amount of foreign exchange forward / FCY-INR options contracts booked with the ---------------(designated branch) of ------------------(bank) in India is within the limit of USD 1,000,000/- (US Dollar One Million only) and certify that the above derivative contracts are meant for undertaking permitted current and / or capital account transactions. I also certify that I have not booked foreign exchange forward / FCY-INR options contracts with any other bank / branch. I have understood the risks inherent in booking of foreign exchange forward contracts / FCY-INR options contracts. Signature of the applicant Place: Date: Certificate by the Authorised Dealer Category – I bank This is to certify that the customer …………(Name of the applicant) having PAN No.……. has been maintaining an account ……..(no.) with us since ……..* We certify that the customer meets the AML / KYC guidelines laid down by RBI and confirm having carried out requisite suitability and appropriateness test. Name and designation of the authorized official: Place: Signature: Date: Stamp and seal * month / year [Removed]28 [Removed]29 Know Your Customer (KYC) Form in respect of the non-resident exporter/importer
We confirm that all the information furnished above is true and accurate as provided by the overseas remitting bank of the non-resident exporter/importer. (Signature of the Authorised Official of the AD bank) Date: Place: Stamp: Reporting of Derivative transactions undertaken by non-resident importer / exporter – for the quarter ended Name of the AD Category I Bank –
Reporting of suspicious transactions undertaken by non-resident importer / exporter – for the quarter ended ___________ Name of the AD Category I Bank –
List of Notifications which have been consolidated in the Master Direction - Risk Management and Inter-Bank Dealings List of circulars which have been consolidated in the Master Direction - Risk Management and Inter-Bank Dealings These circulars should be read in conjunction with FEMA, 1999 and the Rules/Regulations/Directions/Orders/Notifications issued thereunder. 1 A European option may be exercised only at the expiry date of the option, i.e. at a single pre-defined point in time. 2 A. P. (DIR Series) Circular No. 28 dated November 5, 2015 3 A.P. (DIR Series) Circular No. 78 dated February 13, 2015 4 SME as defined by the Rural Planning and Credit Department, Reserve Bank of India vide circular RPCD.PLNS. BC.No.63/06.02.31/2006-07 dated April 4, 2007. 5Rupee denominated bonds issued overseas may be hedged provided it is permitted under contracted exposure hedging. 6 Standardized format will be devised by Foreign Exchange Dealers Association of India (FEDAI) and will include details like transaction type, i.e. current account (import, export) or capital account (ECB, FPI, FDI etc.), amount, currency and tenor. 7 A.P. (DIR Series) No. 35 dated December 10, 2015 containing Amendment Directions issued under RBI Act, 1934 for introduction of cross-currency futures and options and exchange traded options in EUR-INR, GBP-INR and JPY-INR currency pairs. 8 A.P. (DIR Series) No. 35 dated December 10, 2015 containing Amendment Directions issued under RBI Act, 1934 for introduction of cross-currency futures and options and exchange traded options in EUR-INR, GBP-INR and JPY-INR currency pairs. 9 A.P. (DIR Series) Circular No. 30 dated February 2, 2017 10 A. P. (DIR Series) Circular No. 8 dated October 12, 2017. 11 A. P. (DIR Series) Circular No. 8 dated October 12, 2017. 12 A. P. (DIR Series) Circular No. 8 dated October 12, 2017. 13 In terms of A.P. (DIR Series) Circular No. 25 dated September 3, 2014 and A.P. (DIR Series) Circular No. 103 dated May 21, 2015 14 Refer A.P. (DIR Series) Circular No. 41 dated March 21, 2017 15 Rupee denominated bonds issued overseas may be hedged provided it is permitted under contracted exposure hedging. 16 Standardized format will be devised by Foreign Exchange Dealers Association of India (FEDAI) and will include details like transaction type, i.e. current account (import, export) or capital account (ECB, FPI, FDI etc.), amount, currency and tenor. 17A. P. (DIR Series) Circular No. 23 dated March 27, 2020 18 A. P. (DIR Series) Circular No. 102 May 21, 2015 19A. P. (DIR Series) Circular No. 23 dated March 27, 2020 20 A.P. (DIR Series) Circular No. 112 dated June 25, 2015 21 A.P. (DIR Series) Circular No. 15 dated January 06, 2020 22 A.P. (DIR Series) Circular No. 78 dated June 23, 2016. Guidelines on Covered Options which is not considered a hedging / risk management strategy are included under this Master Direction so there is a single reference document in respect of foreign exchange derivatives. 23A. P. (DIR Series) Circular No. 3 dated August 10, 2017 24A. P. (DIR Series) Circular No. 3 dated August 10, 2017 25 Capital refers to Tier I capital as per instructions issued by Reserve Bank of India (Department of Banking Operations and Development). 26 RBI/2017-18/138 A.P. (DIR Series) Circular No. 19 dated March 12, 2018 27 RBI/2017-18/138 A.P. (DIR Series) Circular No. 19 dated March 12, 2018 28 RBI/2017-18/138 A.P. (DIR Series) Circular No. 19 dated March 12, 2018 29 RBI/2017-18/138 A.P. (DIR Series) Circular No. 19 dated March 12, 2018 |
RBI/FMRD/2016-17/31 July 5, 2016 All Authorised Dealers - Category I Banks Madam / Sir, Master Direction - Risk Management and Inter-Bank Dealings In exercise of the powers conferred by clause (h) of sub-section (2) of section 47 of the Foreign Exchange Management Act (FEMA), 1999 (42 of 1999), the Reserve Bank has framed regulations to promote orderly development and maintenance of foreign exchange market in India through Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 Notification No. FEMA 25/RB-2000 dated May 3, 2000 and subsequent amendments thereto. Attention is also drawn to provisions in Notification No. FEMA 1/2000-RB, Regulation 4(2) of Notification No. FEMA 3/RB-2000 and subsequent amendments thereto. All of the above govern the Foreign Exchange Derivative Contracts, Overseas Commodity & Freight Hedging, Rupee Accounts of Non-Resident Banks and Inter-Bank Foreign Exchange Dealings etc. These Regulations are amended from time to time to incorporate the changes in the regulatory framework and published through amendment notifications. 2. Within the contours of the Regulations, the Reserve Bank issues directions to Authorised Persons under Section 11 of the Foreign Exchange Management Act (FEMA), 1999. These directions lay down the modalities as to how the foreign exchange business has to be conducted by the Authorised Persons with their customers / constituents with a view to implementing the regulations framed. 3. Instructions issued in respect of Foreign Exchange Derivative Contracts, Overseas Commodity & Freight Hedging, Rupee Accounts of Non-Resident Banks and Inter-Bank Foreign Exchange Dealings etc. have been compiled in this Master Direction. The list of underlying notifications / circulars which form the basis of this Master Direction is furnished in the Appendix. 4. It may be noted that, whenever necessary, Reserve Bank shall issue directions to Authorised Persons through A.P. (DIR Series) Circulars in regard to any change in the Regulations or the manner in which relative transactions are to be conducted by the Authorised Persons with their customers/ constituents. The Master Direction issued herewith shall be amended suitably simultaneously. Yours faithfully, (T Rabi Sankar) PART – A SECTION I Facilities for Persons Resident in India other than Authorised Dealers Category-I The facilities for persons resident in India (other than AD Category I banks) are elaborated under paragraphs A and B. Paragraph A describes the products and operational guidelines for the respective product. In addition to the operational guidelines under A, the general instructions that are applicable across all products for residents (other than AD Category I banks) are detailed under Paragraph B. A. Products and Operational Guidelines The product/purpose-wise facilities for persons resident in India (other than AD Category I banks) are detailed under the following subheads: 1) Contracted Exposure 2) Probable Exposure 3) Special Dispensation 1) Contracted Exposures AD Category I banks have to evidence the underlying documents so that the existence of underlying foreign currency exposure can be clearly established. AD Category I banks, through verification of documentary evidence, should be satisfied about the genuineness of the underlying exposure, irrespective of the transaction being a current or a capital account. Full particulars of the contracts should be marked on the original documents under proper authentication and retained for verification. However, in cases where the submission of original documents is not possible, a copy of the original documents, duly certified by an authorized official of the user, may be obtained. In either of the cases, before offering the contract, the AD Category I banks should obtain an undertaking from the customer and also certificates from the statutory auditor (for details refer para B (b) for General Instructions). While details of the underlying have to be recorded at the time of booking the contract, in the view of logistic issues, a maximum period of 15 days may be allowed for production of the documents. If the documents are not submitted by the customer within 15 days, the contract may be cancelled, and the exchange gain, if any, should not be passed on to the customer. In the event of non-submission of the documents by the customer within 15 days on more than three occasions in a financial year, booking of permissible derivative contracts in future may be allowed only against production of the underlying documents, at the time of booking the contract. The products available under this facility are as follows: i) Forward Foreign Exchange Contracts Participants Market-makers - AD Category I banks Users - Persons resident in India Purpose a) To hedge exchange rate risk in respect of transactions for which sale and /or purchase of foreign exchange is permitted under the FEMA 1999, or in terms of the rules/ regulations/directions/orders made or issued there under. b) To hedge exchange rate risk in respect of the market value of overseas direct investments (in equity and loan). i) Contracts covering overseas direct investment (ODI) can be cancelled or rolled over on due dates. If a hedge becomes naked in part or full owing to contraction (due to price movement/impairment) of the market value of the ODI, the hedge may be allowed to continue until maturity, if the customer so desires. Rollovers on due date shall be permitted up to the extent of the market value as on that date. c) To hedge exchange rate risk of transactions denominated in foreign currency but settled in INR, including hedging the economic (currency indexed) exposure of importers in respect of customs duty payable on imports. i) Forward foreign exchange contracts covering such transactions will be settled in cash on maturity. ii) These contracts once cancelled, are not eligible to be rebooked. iii) In the event of any change in the rate(s) of customs duties, due to Government notifications subsequent to the date of the forward contracts, importers may be allowed to cancel and/or rebook the contracts before maturity. Operational Guidelines, Terms and Conditions General principles to be observed for forward foreign exchange contracts. a) The maturity of the hedge should not exceed the maturity of the underlying transaction. The currency of hedge and tenor, subject to the above restrictions, are left to the customer. Where the currency of hedge is different from the currency of the underlying exposure, the risk management policy of the corporate, approved by the Board of the Directors, should permit such type of hedging. b) Where the exact amount of the underlying transaction is not ascertainable, the contract may be booked on the basis of reasonable estimates. However, there should be periodical review of the estimates. c) Foreign currency loans/bonds will be eligible for hedge only after final approval is accorded by the Reserve Bank, where such approval is necessary or Loan Registration Number is allotted by the Reserve Bank. d) Global Depository Receipts (GDRs)/American Depository Receipts (ADRs) will be eligible for hedge only after the issue price has been finalized. e) Balances in the Exchange Earner's Foreign Currency (EEFC) accounts sold forward by the account holders shall remain earmarked for delivery and such contracts shall not be cancelled. They are, however, eligible for rollover, on maturity. f) In case of contracted exposures, forward contracts, involving Rupee as one of the currencies, in respect of all current account transactions as well as capital account transactions with a residual maturity of one year or less may be freely cancelled and rebooked. g) In case of forward contracts involving Rupee as one of the currencies, booked by residents in respect of all hedge transactions, if cancelled with one AD Category I bank can be rebooked with another AD Category I bank subject to the following conditions: (i) the switch is warranted by competitive rates on offer, termination of banking relationship with the AD Category I bank with whom the contract was originally booked; (ii) the cancellation and rebooking are done simultaneously on the maturity date of the contract; and (iii) the responsibility of ensuring that the original contract has been cancelled rests with the AD Category I bank who undertakes rebooking of the contract. h) Forward contracts can be rebooked on cancellation subject to condition (i) below. i) The facility of rebooking should not be permitted unless the corporate has submitted the exposure information as prescribed in Annex V. j) Substitution of contracts for hedging trade transactions may be permitted by an AD Category I bank on being satisfied with the circumstances under which such substitution has become necessary. The AD Category I bank may also verify the amount and tenor of the underlying substituted. ii) Cross Currency Options (not involving Rupee) Participants Market-makers - AD Category I banks as approved for this purpose by the Reserve Bank Users – Persons resident in India Purpose a) To hedge exchange rate risk arising out of trade transactions. b) To hedge the contingent foreign exchange exposure arising out of submission of a tender bid in foreign exchange. Operational Guidelines, Terms and Conditions
iii) Foreign Currency - INR Options Participants Market-makers - AD Category I banks, as approved for this purpose by the Reserve Bank. Users – Persons resident in India Purpose a) To hedge foreign currency exposures in accordance with Schedule I of Notification No. FEMA 25/2000-RB dated May 3, 2000, as amended from time to time. b) To hedge the contingent foreign exchange exposure arising out of submission of a tender bid in foreign exchange. Operational Guidelines, Terms and Conditions a) AD Category I banks having a minimum CRAR of 9 per cent, can offer foreign currency– INR options on a back-to-back basis. b) For the present, AD category I banks can offer only plain vanilla European options. c) Customers can buy call or put options. d) All guidelines applicable for foreign currency-INR foreign exchange forward contracts are applicable to foreign currency-INR option contracts also. e) AD Category I banks having adequate internal control, risk monitoring/ management systems, mark to market mechanism, etc. are permitted to run a foreign currency– INR options book on prior approval from the Reserve Bank, subject to conditions. AD Category I banks desirous of running a foreign currency-INR options book and fulfilling minimum eligibility criteria listed below, may apply to the Reserve Bank with copies of approval from the competent authority (Board/ Risk Committee/ ALCO), detailed memorandum in this regard, specific approval of the Board for the type of option writing and permissible limits. The memorandum put up to the Board should clearly mention the downside risks, among other matters. Minimum Eligibility Criteria:
The Reserve Bank will consider the application and accord a one-time approval at its discretion. AD Category I banks are expected to manage the option portfolio within the Reserve Bank approved risk management limits. f) AD banks may quote the option premium in Rupees or as a percentage of the Rupee/foreign currency notional. g) Option contracts may be settled on maturity either by delivery on spot basis or by net cash settlement in Rupees on spot basis as specified in the contract. In case of unwinding of a transaction prior to the maturity, the contract may be cash settled based on market value of an identical off-setting option. h) Market makers are allowed to hedge the ‘Delta’ of their option portfolio by accessing the spot and forward markets. Other ‘Greeks’ may be hedged by entering into option transactions in the inter-bank market. i) The ‘Delta’ of the option contract would form part of the overnight open position. j) The ‘Delta’ equivalent as at the end of each maturity shall be taken into account for the purpose of AGL. The residual maturity (life) of each outstanding option contract can be taken as the basis for the purpose of grouping under various maturity buckets. k) AD banks running an option book are permitted to initiate plain vanilla cross currency option positions to cover risks arising out of market making in foreign currency-INR options. l) Banks should put in place necessary systems for marking to market the portfolio on a daily basis. FEDAI will publish daily a matrix of polled implied volatility estimates, which market participants can use for marking to market their portfolio. m) The accounting framework for option contracts will be as per FEDAI circular No.SPL-24/FC-Rupee Options/2003 dated May 29, 2003. iv) Foreign Currency-INR Swaps Participants Market-makers – AD Category I banks in India. For2 entering into swaps with Multilateral (MFI) or International Financial Institutions (IFIs) in which Government of India is a shareholder, refer to para. (g) under operational guidelines, terms and conditions. Users – i. Residents having a foreign currency liability and undertaking a foreign currency-INR swap to move from a foreign currency liability to a Rupee liability. ii. Incorporated resident entities having a rupee liability and undertaking an INR – foreign currency swap (INR-FCY) to move from rupee liability to a foreign currency liability, subject to certain minimum prudential requirements, such as risk management systems and natural hedges or economic exposures. In the absence of natural hedges or economic exposures, the INR-foreign currency swap (to move from rupee liability to a foreign currency liability) may be restricted to listed companies or unlisted companies with a minimum net worth of Rs 200 crore. Further, the AD Category I bank is required to examine the suitability and appropriateness of the swap and be satisfied about the financial soundness of the corporate. Purpose To hedge exchange rate and/or interest rate risk exposure for those having long-term foreign currency borrowing or to transform long-term INR borrowing into foreign currency liability. Operational Guidelines, Terms and Conditions a) No swap transactions involving upfront payment of Rupees or its equivalent in any form shall be undertaken. b) The term “long-term exposure” means exposures with residual maturity of one year or more. c) The swap transactions, once cancelled, shall not be rebooked or re-entered, by whichever mechanism or by whatever name called. In3 case of FCY-INR swaps however, where the underlying is still surviving, the client, on cancellation of the swap contract, may be permitted to re‐enter into a fresh swap, to hedge the underlying but only after the expiry of the tenor of the original swap contract that had been cancelled. This flexibility is not permitted for INR-FCY swaps. d) AD Category I banks should not offer leveraged swap structures. Typically, in leveraged swap structures, a multiplicative factor other than unity is attached to the benchmark rate(s), which alters the payables or receivables vis-à-vis the situation in the absence of such a factor. e) The notional principal amount of the swap should not exceed the outstanding amount of the underlying loan. f) The maturity of the swap should not exceed the remaining maturity of the underlying loan. g) For hedging their long term foreign currency borrowings residents may enter in to FCY-INR swaps with Multilateral or International Financial Institutions (MFI/IFI) in which Government of India is a shareholding member subject to the following terms and conditions in addition to (a) to (f) above:
v) Cost Reduction Structures i.e. cross currency option cost reduction structures and foreign currency –INR option cost reduction structures. Participants Market-makers - AD Category I banks Users – Listed companies and their subsidiaries/joint ventures/associates having common treasury and consolidated balance sheet or unlisted companies with a minimum net worth of Rs. 200 croreprovided
(Note: The above accounting treatment is a transitional arrangement till AS 30 / 32 or equivalent standards are notified.)” Purpose To hedge exchange rate risk arising out of trade transactions, External Commercial Borrowings (ECBs) and foreign currency loans availed of domestically against FCNR (B) deposits. Operational Guidelines, Terms and Conditions
vi) Hedging of Borrowings in foreign exchange, which are in accordance with the provisions of Foreign Exchange Management (Borrowing and Lending in Foreign Exchange) Regulations, 2000. Products – Interest rate swap, Cross currency swap, Coupon swap, Cross currency option, Interest rate cap or collar (purchases), Forward rate agreement (FRA) Participants Market-makers – a) AD Category I banks in India b) Branch outside India of an Indian bank authorized to deal in foreign exchange in India c) Offshore banking unit in a SEZ in India. Users – Persons resident in India who have borrowed foreign exchange in accordance with the provisions of Foreign Exchange Management (Borrowing and Lending in Foreign Exchange) Regulations, 2000. Purpose For hedging interest rate risk and currency risk on loan exposure and unwinding from such hedges. Operational Guidelines, Terms and Conditions
2) Probable exposures based on past performance Participants Market-makers – AD Category I banks in India. Users – Importers and exporters of goods and services Purpose To hedge currency risk on the basis of a declaration of an exposure and based on past performance up to the average of the previous three financial years’ (April to March) actual import/export turnover or the previous year’s actual import/export turnover, whichever is higher. Probable exposure based on past performance can be hedged only in respect of trades in merchandise goods as well as services. Products Forward foreign exchange contracts, cross currency options (not involving the rupee), foreign currency-INR options and cost reduction structures [as mentioned in section B para I 1(v)]. Operational Guidelines, Terms and Conditions a) Corporates having a minimum net worth of Rs 200 crores and an annual export and import turnover exceeding Rs 1000 crores and satisfying all other conditions as stipulated in section B para I 1(v) may be allowed to use cost reduction structures. b) The contracts booked during the current financial year (April-March) and the outstanding contracts at any point of time should not exceed
c) Contracts booked up to 75 percent of the eligible limit mentioned at paragraph (b) (i) and (b) (ii) above may be cancelled with the exporter/importer bearing/being entitled to the loss or gain as the case may be. Contracts booked in excess of 75 percent of the eligible limit mentioned at paragraph (b) (i) and (b) (ii) above shall be on a deliverable basis and cannot be cancelled, implying that in the event of cancellation, the exporter/importer shall have to bear the loss but will not be entitled to receive the gain. d) These limits shall be computed separately for import/export transactions. e) Higher limits will be permitted on a case-by-case basis on application to the Chief General Manager, Financial Markets Regulation Department, Reserve Bank of India, Central Office, 9th Floor, Central Office Building, Shahid Bhagat Singh Road, Fort, Mumbai – 400 001. The additional limits, if sanctioned, shall be on a deliverable basis. f) Any contract booked without producing documentary evidence will be marked off against this limit. These contracts once cancelled, are not eligible to be rebooked. Rollovers are also not permitted. g) AD banks should permit their clients to use the past performance facility only after satisfying themselves that the following conditions are complied with: i. An undertaking may be taken from the customer that supporting documentary evidence will be produced before the maturity of all the contracts booked. ii. Importers and exporters should furnish a quarterly declaration to the AD Category I banks, signed by the Chief Financial Officer (CFO) and the Company Secretary (CS), regarding amounts booked with other AD Category I banks under this facility, as per Annex VI. In the absence of a CS, the Chief Executive Officer (CEO) or the Chief Operating Officer (COO) shall co-sign the undertaking along with the CFO. iii. For an exporter customer to be eligible for this facility, the aggregate of overdue bills shall not exceed 10 per cent of the turnover. iv. Aggregate outstanding contracts in excess of 50 per cent of the eligible limit may be permitted by the AD Category I bank on being satisfied about the genuine requirements of their customers after examination of a document as per the format in Annex VII, signed by the CFO and CS, containing the following:
In the absence of a CS, the CEO or the CFO shall co-sign the undertaking along with the CFO. h) The past performance limits once utilised are not to be reinstated either on cancellation or on maturity of the contracts. i) AD Category I banks must arrive at the past performance limits at the beginning of every financial year. The drawing up of the audited figures (previous year) may require some time at the commencement of the financial year. However, if the statements are not submitted within three months from the last date of the financial year, the facility should not be provided until submission of the audited figures. j) As part of the annual audit exercise, the Statutory Auditor shall certify the following:
k) AD Category I banks must institute appropriate systems for validating the past performance limits at pre-deal stage. In addition to the customer declarations, AD Category I banks should also assess the past transactions with the customers, turnover, etc. l) AD Category I banks are required to submit a monthly report (as on the last Friday of every month) on the limits granted and utilised by their constituents under this facility as prescribed in Annex X. 3) Special Dispensation i) Small and Medium Enterprises (SMEs) Participants Market-makers – AD Category I. Users – Small and Medium Enterprises (SMEs)4 Purpose To hedge direct and / or indirect exposures of SMEs to foreign exchange risk Product Forward foreign exchange contracts Operational Guidelines: Small and Medium Enterprises (SMEs) having direct and / or indirect exposures to foreign exchange risk are permitted to book / cancel / / roll over forward contracts without production of underlying documents to manage their exposures effectively, subject to the following conditions:
ii) Resident Individuals, Firms and Companies Participants Market-makers – AD Category I banks Users: Resident Individuals, Firms and Companies Purpose To hedge their foreign exchange exposures arising out of actual or anticipated remittances, both inward and outward, can book forward contracts, without production of underlying documents, up to a limit of USD 1,000,000 (USD one million), based on self-declaration. Product Forward foreign exchange contracts and FCY-INR options Operational Guidelines, Terms and Conditions a) While the contracts booked under this facility would normally be on a deliverable basis, cancellation and rebooking of contracts are permitted. Based on the track record of the entity, the concerned AD Cat-I bank may, however, call for underlying documents, if considered necessary, at the time of rebooking of cancelled contracts. The notional value of the outstanding contracts should not exceed USD 1,000,000 at any time. b) The contracts may be permitted to be booked up to tenors of one year only. c) Such contracts may be booked through AD Category I banks with whom the resident individual / firm / company has banking relationship, on the basis of an application-cum-declaration in the format given in Annex XV. The AD Category I banks should satisfy themselves that the hedging entities understand the nature of risk inherent in booking of forward contracts or FCY-INR options and should carry out due diligence regarding “user appropriateness” and “suitability” of the forward contracts / FCY-INR options to such customer. iii) Simplified Hedging Facility Users: Resident and non-resident entities, other than individuals. Purpose: To hedge exchange rate risk on transactions, contracted or anticipated, permissible under Foreign Exchange Management Act (FEMA), 19995. Products: Any Over the Counter (OTC) derivative or Exchange Traded Currency Derivative (ETCD) permitted under FEMA, 1999. Cap on Outstanding Contracts: USD 30 million, or its equivalent, on a gross basis. Designated Bank: Any Authorised Dealer Category-I (AD Cat-I) bank designated as such by the user. Operational Guidelines, Terms and Conditions
B. General Instructions for OTC forex derivative contracts entered by Residents in India While the guidelines indicated above govern specific foreign exchange derivatives, certain general principles and safeguards for prudential considerations that are applicable across the OTC foreign exchange derivatives, are detailed below. In addition to the guidelines under the specific foreign exchange derivative product, the general instructions should be followed scrupulously by the users (residents in India other than AD Category I banks) and the market makers (AD Category I banks). For Simplified Hedging Facility, para (a) and (b) below will not be applicable. a) In case of all forex derivative transactions [except INR- foreign currency swaps i.e. moving from INR liability to foreign currency liability as in section B para I(1)(iv)] is undertaken, AD Category I banks must take a declaration from the clients that the exposure is unhedged and has not been hedged with another AD Category I bank. The corporates should provide an annual certificate to the AD Category I bank certifying that the derivative transactions are authorized and that the Board (or the equivalent forum in case of partnership or proprietary firms) is aware of the same. b) In the case of contracted exposure, AD Category I banks must obtain: i) An undertaking from the customer that the same underlying exposure has not been covered with any other AD Category I bank/s. Where hedging of the same exposure is undertaken in parts, with more than one AD Category I bank, the details of amounts already booked with other AD Category I bank/s should be clearly indicated in the declaration. This undertaking can also be obtained as a part of the deal confirmation. ii) An annual certificate from the statutory auditors to the effect that the contracts outstanding with all AD category I banks at any time during the year did not exceed the value of the underlying exposures at that time. It is reiterated, however, that that the AD bank, while entering into any derivative transaction with a client, shall have to obtain an undertaking from the client to the effect that the contracted exposure against which the derivative transaction is being booked has not been used for any derivative transaction with any other AD bank. c) Derived foreign exchange exposures are not permitted to be hedged. However, in case of INR- foreign currency swaps, at the inception, the user can enter into one time plain vanilla cross currency option (not involving Rupee) to cap the currency risk. d) In any derivative contract, the notional amount should not exceed the actual underlying exposure at any point in time. Similarly, the tenor of the derivative contracts should not exceed the tenor of the underlying exposure. The notional amount for the entire transaction over its complete tenor must be calculated and the underlying exposure being hedged must be commensurate with the notional amount of the derivative contract. e) Only one hedge transaction can be booked against a particular exposure/ part thereof for a given time period. f) The term sheet for the derivative transactions (except forward contracts) should also necessarily and clearly mention the following:
g) AD Category I banks can offer only those products that they can price independently. This is also applicable to the products offered even on back to back basis. The pricing of all forex derivative products should be locally demonstrable at all times. h) The market-makers should carry out proper due diligence regarding ‘user appropriateness’ and ‘suitability’ of products before offering derivative products (except forward contracts) to users as detailed in. No.BP.BC. 44 /21.04.157/2011-12 dated November 2, 2011. i) AD Category I may share with the user the various scenario analysis encompassing both the possible upside as well as the downsides and sensitivity analysis identifying the various market parameters that affect the product. j) The provisions of comprehensive guidelines on Derivatives issued vide DBOD.No.BP.BC. 86/21.04.157/2006-07 dated April 20, 2007 and as amended from time to time are also applicable to forex derivatives. k) Sharing of information on derivatives between banks is mandatory and as detailed vide circular DBOD.No.BP.BC.46/08.12.001/2008-09 dated September 19, 2008 and DBOD.No. BP. BC. 94/08.12.001/2008-09 dated December 8, 2008. 4. Currency Futures on recognised Stock /New Exchanges As part of further developing the derivatives market in India and adding to the existing menu of foreign exchange hedging tools available to the residents and non-residents, currency futures contracts have been permitted to be traded in recognized stock exchanges or new exchanges, recognized by the Securities and Exchange Board of India (SEBI) in the country. The currency futures market would function subject to the directions, guidelines, instructions issued by the Reserve Bank and the SEBI, from time to time. Participation in the currency futures market in India is subject to directions contained in the Currency Futures (Reserve Bank) Directions, 2008 [Notification No.FED.1/DG(SG)-2008 dated August 6, 2008] (Directions) and Notification No.FED. 2/ED (HRK)-2009 dated January 19, 2010, as amended7 from time to time, issued by the Reserve Bank of India under Section 45W of the Reserve Bank of India Act, 1934. Currency futures are subject to following conditions: Permission (i) Currency futures are permitted in US Dollar (USD) - Indian Rupee (INR), Euro (EUR)-INR, Japanese Yen (JPY)-INR, Pound Sterling (GBP)-INR, EUR-USD, GBP-USD and USD-JPY. (ii) ‘Persons resident in India’ may purchase or sell currency futures contracts subject to the terms and conditions laid down in paragraph 6 below. (iii) Foreign Portfolio Investors (FPIs) are permitted to enter into currency futures contracts subject to the terms and conditions laid down in Part A, Section II, paragraph no. 2. Features of currency futures Standardized currency futures shall have the following features: a. Foreign Currency-Indian Rupee contracts, viz. USD-INR, EUR-INR, GBP-INR and JPY-INR and Cross Currency contracts (not involving the Indian Rupee), viz. EUR-USD, GBP-USD and USD-JPY are allowed to be traded. b. The size of the USD-INR and USD-JPY contracts shall be USD 1000, of EUR-INR and EUR-USD contracts shall be EUR 1000, of GBP-INR and GBP-USD contracts shall be GBP 1000 and JPY-INR contract shall be JPY 100,000. c. All Foreign Currency-INR contracts shall be quoted and settled in Indian Rupees. EUR-USD and GBP-USD cross currency contracts shall be quoted in USD and USD-JPY contract shall be quoted in JPY. All cross currency contracts shall be settled in Indian Rupees as per the method approved by Reserve Bank. d. The maturity of the contracts shall not exceed 12 months. e. The settlement price for USD-INR shall be the Reserve Bank’s Reference Rate and for Euro-INR, GBP-INR and JPY-INR contracts shall be the exchange rates published by the Reserve Bank in its press release on the last trading day. The settlement price in Indian Rupees of the cross-currency contracts shall be computed using the Reserve Bank’s USD-INR Reference Rate and the corresponding exchange rate published by Reserve Bank for EUR-INR, GBPINR and JPY-INR on the last trading day. Membership (i) The membership of the currency futures market of a recognised stock exchange shall be separate from the membership of the equity derivative segment or the cash segment. Membership for both trading and clearing, in the currency futures market shall be subject to the guidelines issued by the SEBI. (ii) Banks authorized by the Reserve Bank under section 10 of the Foreign Exchange Management Act, 1999 as ‘AD Category - I bank’ are permitted to become trading and clearing members of the currency futures market of the recognized stock exchanges, on their own account and on behalf of their clients, subject to fulfilling the minimum prudential requirements. (iii) AD Category - I banks which do not meet the above minimum prudential requirements and AD Category - I banks which are Urban Co-operative banks or State Co-operative banks can participate in the currency futures market only as clients, subject to approval therefore from the respective regulatory Departments of the Reserve Bank. Position limits i. The position limits for various classes of participants in the currency futures market shall be subject to the guidelines issued by the SEBI. ii. The AD Category - I banks, shall operate within prudential limits, such as Net Open Position (NOP) and Aggregate Gap (AG) limits. Risk Management measures The trading of currency futures shall be subject to maintaining initial, extreme loss and calendar spread margins and the Clearing Corporations / Clearing Houses of the exchanges should ensure maintenance of such margins by the participants on the basis of the guidelines issued by the SEBI from time to time. Surveillance and disclosures The surveillance and disclosures of transactions in the currency futures market shall be carried out in accordance with the guidelines issued by the SEBI. Authorisation to Currency Futures Exchanges / Clearing Corporations Recognized stock exchanges and their respective Clearing Corporations / Clearing Houses shall not deal in or otherwise undertake the business relating to currency futures unless they hold an authorization issued by the Reserve Bank under section 10(1) of the Foreign Exchange Management Act, 1999. 5. Currency Options on recognised Stock /New Exchanges In order to expand the existing menu of exchange traded hedging tools available to the residents and non-residents, plain vanilla currency options contracts have been permitted to be traded in recognized stock exchanges or new exchanges, recognized by the Securities and Exchange Board of India (SEBI) in the country. Exchange traded Currency options are subject to following conditions: Permission (i) Currency option contracts8 are permitted in USD-INR spot rate, EUR-INR spot rate GBP-INR spot rate and JPY-INR spot rate. Cross currency option contracts (not involving the Indian Rupee) are permitted in EUR-USD spot rate, GBP-USD spot rate and the USD-JPY spot rate. (ii) ‘Persons resident in India’ may purchase or sell exchange traded currency options contracts subject to the terms and conditions laid down in paragraph 6 below. (iii) Foreign Portfolio Investors (FPIs) are permitted to enter into exchange traded currency options contracts subject to the terms and conditions laid down in Part A, Section II, paragraph no. 2. Features of exchange traded currency options Standardized exchange traded currency options shall have the following features:
Membership i) Members registered with the SEBI for trading in currency futures market shall be eligible to trade in the exchange traded currency options market of a recognised stock exchange. Membership for both trading and clearing, in the exchange traded currency options market shall be subject to the guidelines issued by the SEBI. ii) Banks authorized by the Reserve Bank under section 10 of the Foreign Exchange Management Act, 1999 as ‘AD Category - I bank’ are permitted to become trading and clearing members of the exchange traded currency options market of the recognized stock exchanges, on their own account and on behalf of their clients, subject to fulfilling the following minimum prudential requirements:
The AD Category - I banks, which fulfil the prudential requirements, should lay down detailed guidelines with the approval of their Boards for trading and clearing of the exchange traded currency options contracts and management of risks. iii) AD Category - I banks, which do not meet the above minimum prudential requirements and AD Category - I banks, which are Urban Co-operative banks or State Co-operative banks, can participate in the exchange traded currency options market only as clients, subject to approval therefor from the respective regulatory Departments of the Reserve Bank. Position limits i) The position limits for various classes of participants for the currency options shall be subject to the guidelines issued by the SEBI. ii) The AD Category - I banks shall operate within prudential limits, such as Net Open Position (NOP) and Aggregate Gap (AG) limits. Risk Management measures The trading of exchange traded currency options shall be subject to maintaining initial, extreme loss and calendar spread margins and the Clearing Corporations / Clearing Houses of the exchanges should ensure maintenance of such margins by the participants on the basis of the guidelines issued by the SEBI from time to time. Surveillance and disclosures The surveillance and disclosures of transactions, in the exchange traded currency options market, shall be carried out in accordance with the guidelines issued by the SEBI. Authorisation to the Exchanges / the Clearing Corporations for dealing in Currency Options Recognized stock exchanges and their respective Clearing Corporations / Clearing Houses shall not deal in or otherwise undertake the business relating to the exchange traded currency options unless they hold an authorisation issued by the Reserve Bank under section 10 (1) of the Foreign Exchange Management Act, 1999. 6. Terms and conditions for residents participating in the Exchange Traded Currency Derivatives (ETCD) a. Persons resident in India may take positions (long or short), without having to establish existence of underlying exposure, upto a single limit of USD 100 million equivalent across all currency pairs involving INR, put together, and combined across all exchanges. b. Residents shall be allowed to take positions in the cross-currency futures and exchange traded cross-currency option contracts without having to establish underlying exposure subject to the position limits as prescribed by the exchanges. c. Domestic participants who want to take a position in excess of limits mentioned at paragraph (a) above in the ETCD market will have to establish the existence of an underlying exposure. The procedure for the same shall be as under:
d. The onus of complying with the provisions of this circular rests with the participant in the ETCD market and in case of any contravention the participant shall be liable to any action that may be warranted as per the provisions of Foreign Exchange Management Act, 1999 and the regulations, directions, etc. issued thereunder. The position limits shall also be monitored by the exchanges, and breaches, if any, may be reported to the Financial Markets Regulation Department, Reserve Bank of India. 7. Commodity Hedging Refer Hedging of Commodity Price Risk and Freight Risk in Overseas Markets (Reserve Bank) Directions (RBI/2017-18/138 A.P. (DIR Series) Circular No. 19 dated March 12, 2018). 8. Freight hedging Refer Hedging of Commodity Price Risk and Freight Risk in Overseas Markets (Reserve Bank) Directions (RBI/2017-18/138 A.P. (DIR Series) Circular No. 19 dated March 12, 2018). SECTION II Facilities for Persons Resident outside India Participants Market-makers – AD Category I banks. Users – Foreign Portfolio Investors(FPIs), Investors having Foreign Direct Investments (FDI), Non Resident Indians (NRIs), Non Resident exporters and importers, Non Residents lenders having ECBs designated in INR. The purpose, products and operational guidelines of each of the users is detailed below: 1. Facilities for Foreign Portfolio Investors (FPIs) Purpose i) To hedge currency risk on the market value of entire investment in equity and/or debt in India as on a particular date. ii) To hedge the coupon receipts arising out of investments in debt securities falling due during the following twelve months. iii) To hedge Initial Public Offers (IPO) related transient capital flows under the Application Supported by Blocked Amount (ASBA) mechanism. Products Forward foreign exchange contracts with rupee as one of the currencies and foreign currency-INR options. Foreign Currency – INR swaps for IPO related flows. Operational Guidelines, Terms and Conditions a) FPIs may approach any AD Category I bank for hedging their currency risk on the market value of entire investment in equity and/or debt in India as on a particular date subject to the following conditions: i. The eligibility for cover may be determined on the basis of a valuation certificate provided by the designated AD category bank along with a declaration by the FPI to the effect that its global outstanding hedges plus the derivatives contracts cancelled across all AD category banks is within the market value of its investments. ii. The FPI should also provide a quarterly declaration to the custodian bank that the total amount of derivatives contract booked across AD Category banks are within the market value of its investments. iii. The hedges taken with AD banks other than designated AD banks have to be settled through the Special Non-Resident Rupee A/c maintained with the designated bank through RTGS/NEFT. iv. If an FPI wishes to enter into a hedge contract for the exposure relating to that part of the securities held by it against which it has issued any PN/ODI, it must have a mandate from the PN/ODI holder for the purpose. Further, while AD Category bank is expected to verify such mandates, in cases where this is rendered difficult, they may obtain a declaration from the FPI regarding the nature/structure of the PN/ODI establishing the need for a hedge operation and that such operations are being undertaken against specific mandates obtained from their clients. b) AD Category I banks may undertake periodic reviews, at least at quarterly intervals, on the basis of market price movements, fresh inflows, amounts repatriated and other relevant parameters to ensure that the forward cover outstanding is supported by underlying exposures. In this context, it is clarified that in case an FPI intends to hedge the exposure of one of its sub-account holders, (cf paragraph 4 of schedule 2 to Notification No. FEMA 20 /2000-RB dated 3rd May 2000) it will be required to produce a clear mandate from the sub-account holder in respect of the latter’s intention to enter into the derivative transaction. Further, the AD Category I banks shall have to verify the mandate as well as the eligibility of the contract vis-a-vis the market value of the securities held in the concerned sub-account. c) If a hedge becomes naked in part or in full owing to contraction of the market value of the portfolio, for reasons other than sale of securities, the hedge may be allowed to continue till the original maturity, if so desired. d) Forward contracts booked by FPIs, once cancelled, can be rebooked up to the extent of 10 per cent of the value of the contracts cancelled. The forward contracts booked may, however, be rolled over on or before maturity. e) Forward contracts booked for hedging coupon receipts as indicated in para. (1)(ii) above shall not be eligible for rebooking on cancellation. They may however be rolled over on maturity provided the relative coupon amount is yet to be received. f) The cost of hedge should be met out of repatriable funds and /or inward remittance through normal banking channel. g) All outward remittances incidental to the hedge are net of applicable taxes. h) For IPO related transient capital flows
i) FPIs and other foreign investor are free to remit funds through any bank of its choice for any transaction permitted under FEMA, 1999 or the Regulations / Directions framed thereunder. The funds thus remitted can be transferred to the designated AD Category -I custodian bank through the banking channel. Note should, however, be taken that KYC in respect of the remitter, wherever required, is a joint responsibility of the bank that has received the remittance as well as the bank that ultimately receives the proceeds of the remittance. While the first bank will be privy to the details of the remitter and the purpose of the remittance, the second bank, will have access to complete information from the recipient's perspective. Besides, the remittance receiving bank is required to issue FIRC to the bank receiving the proceeds to establish the fact the funds had been remitted in foreign currency. 2. Terms and conditions for Foreign Portfolio Investors participating in the Exchange Traded Currency Derivatives (ETCD) [Refer Part A, sub-paragraphs (4) & (5)] Foreign portfolio investors (FPIs) eligible to invest in securities as laid down in Schedules 2, 5, 7 and 8 of the Foreign Exchange Management (Transfer or Issue of Security by a person resident outside India) Regulations, 2000 (FEMA 20/2000-RB dated May 3, 2000 (GSR 406 (E) dated May 3, 2000)) as amended from time to time may enter into currency futures or exchange traded currency options contracts subject to the following terms and conditions: a. FPIs will be allowed access to the currency futures or exchange traded currency options for the purpose of hedging the currency risk arising out of the market value of their exposure to Indian debt and equity securities. b. Such investors can participate in the currency futures / exchange traded options market through any registered / recognised trading member of the exchange concerned. c. FPIs may take positions (long or short), without having to establish existence of underlying exposure, upto a single limit of USD 100 million equivalent across all currency pairs involving INR, put together, and combined across all exchanges. d. FPIs, are allowed to take positions in the cross-currency futures and exchange traded cross-currency option contracts without having to establish underlying exposure subject to the position limits as prescribed by the exchanges. e. An FPI cannot take a short position beyond USD 100 million equivalent across all currency pairs involving INR, put together, and combined across all exchanges. In order to take a long position in excess of these limits, it will be required to have an underlying exposure. The onus of ensuring the existence of an underlying exposure shall rest with the FPI concerned. f. The exchange will, however, be free to impose additional restrictions as prescribed by the Securities and Exchange Board of India (SEBI) for the purpose of risk management and fair trading. g. The exchange/ clearing corporation will provide FPI wise information on day-end open position as well as intra-day highest position to the respective custodian banks. The custodian banks will aggregate the position of each FPI on the exchanges as well as the OTC contracts booked with them (i.e. the custodian banks) and other AD banks. If the total value of the contracts exceeds the market value of the holdings on any day, the concerned FPI shall be liable to such penal action as may be laid down by the SEBI in this regard and action as may be taken by Reserve Bank of India under the Foreign Exchange Management Act (FEMA), 1999. The designated custodian bank will be required to monitor this and bring transgressions, if any, to the notice of RBI / SEBI. h. The onus of complying with the provisions of this circular rests with the participant in the ETCD market and in case of any contravention the participant shall be liable to any action that may be warranted as per the provisions of Foreign Exchange Management Act, 1999 and the regulations, directions, etc. issued thereunder. The position limits shall also be monitored by the exchanges, and breaches, if any, may be reported to the Financial Markets Regulation Department, Reserve Bank of India. 3. Facilities for Non-resident Indians (NRIs) Purpose
Products
4. Terms9 and conditions for Non-Resident Indians (NRIs) participating in the Exchange Traded Currency Derivatives (ETCD) i. NRIs shall designate an AD Cat-I bank for the purpose of monitoring and reporting their combined positions in the OTC and ETCD segments. ii. NRIs may take positions in the currency futures / exchange traded options market to hedge the currency risk on the market value of their permissible (under FEMA, 1999) Rupee investments in debt and equity and dividend due and balances held in NRE accounts. iii. The exchange/ clearing corporation will provide details of all transactions of the NRI to the designated bank. iv. The designated bank will consolidate the positions of the NRI on the exchanges as well as the OTC derivative contracts booked with them and with other AD banks. The designated bank shall monitor the aggregate positions and ensure the existence of underlying Rupee currency risk and bring transgressions, if any, to the notice of RBI / SEBI. v. The onus of ensuring the existence of the underlying exposure shall rest with the NRI concerned. If the magnitude of exposure through the hedge transactions exceeds the magnitude of underlying exposure, the concerned NRI shall be liable to such penal action as may be taken by Reserve Bank of India under the Foreign Exchange Management Act (FEMA), 1999. 5. Facilities for Hedging Foreign Direct Investment in India Purpose
Products Forward foreign exchange contracts with rupee as one of the currencies and foreign currency-INR options. Operational Guidelines, Terms and Conditions a) In respect of contracts to hedge exchange rate risk on the market value of investments made in India, contracts once cancelled are not eligible to be rebooked. The contracts may, however, be rolled over. b) In respect of proposed foreign direct investments, following conditions would apply:
6. Facilities for Hedging Trade Exposures, invoiced in Indian Rupees in India Purpose To hedge the currency risk arising out of genuine trade transactions involving exports from and imports to India, invoiced in Indian Rupees, with AD Category I banks in India. Products Forward foreign exchange contracts with rupee as one of the currencies, foreign currency-INR options. Operational Guidelines, Terms and Conditions The AD Category I banks can opt for either Model I or Model II as given below: Model I Non-resident exporter / importer or its central treasury (of the group and being a group entity)10 dealing through their overseas bank (including overseas branches of AD banks in India) i. Non-resident exporter / importer, or its central treasury approaches his banker overseas with appropriate documents with a request for hedging their Rupee exposure arising out of a confirmed import or export order invoiced in Rupees. ii. The overseas bank in turn approaches its correspondent in India (i.e. the AD bank in India) for a price to hedge the exposure of its customer along with documentation furnished by the customer that will enable the AD bank in India to satisfy itself that there is an underlying trade transaction (scanned copies would be acceptable). The following undertakings also need to be taken from the customer:
iii. A certification on the end client KYC may also be taken as a one-time document from the overseas bank by the AD bank in India. iv. The AD bank in India based on documents received from the overseas correspondent should satisfy itself about the existence of the underlying trade transaction and offer a forward price (no two-way quotes should be given) to the overseas bank who, in turn, will offer the same to its customer. The AD bank, therefore, will ‘not be’ dealing directly with the overseas importer / exporter. v. The amount and tenor of the hedge should not exceed that of the underlying transaction and should be in consonance with the extant regulations regarding tenor of payment / realization of the proceeds. vi. On due date, settlement is to be done through the correspondent bank’s Vostro or the AD bank’s Nostro accounts. vii. The contracts, once cancelled, cannot be rebooked. viii. The contracts may, however, be rolled over on or before maturity subject to maturity of the underlying exposure. ix. On cancellation of the contracts, gains may be passed on to the customer subject to the customer providing a declaration that he is not going to rebook the contract or that the contract has been cancelled on account of cancellation of the underlying exposure. x. In case the underlying trade transaction is extended, rollover can be permitted once based on the extension of the underlying trade transaction for which suitable documentation is to be provided by the overseas bank and the same procedure followed as in case of the original contract. Model II Non-resident exporter / importer or its central treasury (of the group and being a group entity)11 dealing directly with the AD bank in India i. The overseas exporter / importer or its central treasury approaches the AD bank in India with a request for forward cover in respect of underlying transaction for which he furnishes appropriate documentation (scanned copies would be acceptable), on a pre-deal basis to enable the AD bank in India to satisfy itself that there is an underlying trade transaction, and details of his overseas banker, address etc. The following undertakings also need to be taken from the customer
ii. The AD bank may obtain certification of KYC/AML in the format in Annex XVIII. The format can be obtained through the overseas correspondent / bank through SWIFT authenticated message. In case the AD bank has a presence outside India, the AD may take care of the KYC/AML through its bank’s offshore branch. iii. AD banks should evolve appropriate arrangements to mitigate credit risk. Credit limits can be granted based on the credit analysis done by self / the overseas branch. iv. The amount and tenor of the hedge should not exceed that of the underlying transaction and should be in consonance with the extant regulations regarding tenor of payment / realization of the proceeds. v. On due date, settlement is to be done through the correspondent bank’s Vostro or the AD bank’s Nostro accounts. AD banks in India may release funds to the beneficiaries only after sighting funds in Nostro / Vostro accounts. vi. The contracts, once cancelled, cannot be rebooked. vii. The contracts may, however, be rolled over on or before maturity subject to maturity of the underlying exposure. viii. On cancellation of the contracts, gains may be passed on to the customer subject to the customer providing a declaration that he is not going to rebook the contract or that the contract has been cancelled on account of cancellation of the underlying exposure. ix. In case the underlying trade transaction is extended, rollover can be permitted once based on the extension of the underlying trade transaction for which suitable documentation is to be provided by the overseas bank and the same procedure followed as in case of the original contract. x. AD banks shall report hedge contracts booked under this facility to CCIL’s trade repository with a special identification tag12. 7. Facilities for Hedging of ECBs, designated in Indian Rupees, in India I) Purpose: To hedge the currency risk arising out of ECBs designated in INR either directly with AD Category- I banks in India or through their overseas banks on a back to back basis as per operational guidelines, terms and conditions given under (II) below Products Forward foreign exchange contracts with rupee as one of the currencies, foreign currency-INR options and foreign currency-INR swaps. Operational Guidelines, Terms and Conditions i. The foreign equity holder / overseas organisation or individual approaches the AD bank in India with a request for forward cover in respect of underlying transaction for which he needs to furnish appropriate documentation (scanned copies would be acceptable), on a pre-deal basis to enable the AD bank in India to satisfy itself that there is an underlying ECB transaction, and details of his overseas banker, address, etc. The following undertakings also need to be taken from the customer –
ii. The amount and tenor of the hedge should not exceed that of the underlying transaction and should be in consonance with the extant regulations regarding tenor of payment / realization of the proceeds. iii. On due date, settlement is to be done through the correspondent bank’s Vostro or the AD bank’s Nostro accounts. AD banks in India may release funds to the beneficiaries only after sighting funds in Nostro / Vostro accounts. iv. The contracts, once cancelled, cannot be rebooked. v. The contracts may, however, be rolled over on or before maturity subject to maturity of the underlying exposure. vi. On cancellation of the contracts, gains may be passed on to the customer subject to the customer providing a declaration that he is not going to rebook the contract or that the contract has been cancelled on account of cancellation of the underlying exposure. II) Purpose: To hedge the currency risk arising out of ECBs designated in INR extended by recognised non-resident lenders13 with AD Category- I banks in India through their overseas banks on a back to back basis. Products: Foreign currency-INR swaps Operational Guidelines, Terms and Conditions (i) The recognised non-resident lender approaches his overseas bank with appropriate documentation as evidence of an underlying ECB denominated in INR with a request for a swap rate for mobilising INR for onward lending to the Indian borrower. (ii) The overseas bank, in turn, approaches an AD Cat-I bank for a swap rate along with documentation furnished by the customer that will enable the AD bank in India to satisfy itself that there is an underlying ECB in INR (scanned copies would be acceptable). The following undertakings also need to be taken from the customer –
(iii) A KYC certification on the end client shall also be taken by the AD bank in India as a one-time document from the overseas bank. (iv) Based on the documents received from the overseas bank, the AD bank in India should satisfy itself about the existence of the underlying ECB in INR and offer an indicative swap rate to the overseas bank which, in turn, will offer the same to the non-resident lender on a back-to-back basis. (v) The continuation of the swap shall be subject to the existence of the underlying ECB at all times. (vi) On the due date, settlement may be done through the Vostro account of the overseas bank maintained with its correspondent bank in India. (vii) The concerned AD Cat-I bank shall keep on record all related documentation for verification by Reserve Bank. 8. Facility for hedging exposures of Indian subsidiaries14 Users Non-resident parent of an Indian subsidiary or its centralised treasury or its regional treasury outside India. Products All FCY-INR derivatives, OTC as well exchange traded that the Indian subsidiary is eligible to undertake as per FEMA, 1999 and Regulations and Directions issued thereunder. Operational Guidelines, Terms and Conditions
9. Simplified Hedging Facility Users: Resident and non-resident entities, other than individuals. Purpose: To hedge exchange rate risk on transactions, contracted or anticipated, permissible under Foreign Exchange Management Act (FEMA), 199915. Products: Any Over the Counter (OTC) derivative or Exchange Traded Currency Derivative (ETCD) permitted under FEMA, 1999. Cap on Outstanding Contracts: USD 30 million, or its equivalent, on a gross basis. Designated Bank: Any Authorised Dealer Category-I (AD Cat-I) bank designated as such by the user. Operational Guidelines, Terms and Conditions
10. Operational Guidelines, Terms and Conditions applicable to all non-residents (except non-residents hedging exposures of Indian subsidiaries at para. 8 above and those hedging under Simplified Hedging Facility) The operational guidelines as outlined for FPIs would be applicable, with the exception of the provision relating to rebooking of cancelled contracts. All foreign exchange derivative contracts permissible for a resident outside India other than a FPI, once cancelled, are not eligible to be rebooked. SECTION III Facilities for Authorised Dealers Category-I 1. Management of Banks’ Assets-Liabilities Users – AD Category I banks Purpose - Hedging of interest rate and currency risks of foreign exchange asset-liability portfolio Products - Interest Rate Swap, Interest Rate Cap/Collar, Currency Swap, Forward Rate Agreement. AD banks may also purchase call or put options to hedge their cross currency proprietary trading positions. Operational Guidelines, Terms and Conditions The use of these instruments is subject to the following conditions:
2. Hedging of Gold Prices Users –
Purpose – To hedge price risk of gold Products - Exchange-traded and over-the-counter hedging products available overseas. Operational Guidelines, Terms and Conditions
3. Hedging of Capital Users – Foreign banks operating in India Product – Forward foreign exchange contracts Operational Guidelines, Terms and Conditions a) Tier I capital -
b) Tier II capital -
4. Participation in the currency futures market in India Please refer to Part-A Section I, paragraph 4. In continuation of the same:
i) Minimum net worth of Rs. 500 crores. ii) Minimum CRAR of 10 per cent. iii) Net NPA should not exceed 3 per cent. iv) Net profit for last 3 years. The AD Category - I banks which fulfill the prudential requirements should lay down detailed guidelines with the approval of their Boards for trading and clearing of currency futures contracts and management of risks. (c). AD Category - I banks which do not meet the above minimum prudential requirements and AD Category - I banks which are Urban Co-operative banks or State Co-operative banks can participate in the currency futures market only as clients, subject to approval and directions from the respective regulatory Departments of the Reserve Bank. (d) The AD Category - I banks, shall operate within prudential limits, such as Net Open Position (NOP) and Aggregate Gap (AG) limits. The exposure of the banks, on their own account, in the currency futures market shall form part of their NOP and AG limits. 5. Participation in the exchange traded currency options market in India Please refer to Part-A Section I, paragraph 5. In continuation of the same: a) AD Category - I banks are permitted to become trading and clearing members of the exchange traded currency options market of the recognized stock exchanges, on their own account and on behalf of their clients, subject to fulfilling the following minimum prudential requirements:
The AD Category - I banks, which fulfil the prudential requirements, should lay down detailed guidelines with the approval of their Boards for trading and clearing of the exchange traded currency options contracts and management of risks. b) AD Category - I banks, which do not meet the above minimum prudential requirements and AD Category - I banks, which are Urban Co-operative banks or State Co-operative banks, can participate in the exchange traded currency options market only as clients, subject to approval therefor from the respective regulatory Departments of the Reserve Bank. c) The AD Category - I banks shall operate within prudential limits, such as Net Open Position (NOP) and Aggregate Gap (AG) limits. The option position of the banks, on their own account, in the exchange traded currency options shall form part of their NOP and AG limits. 6. Operational Guidelines, terms and conditions for AD Category-I banks participation in the ETCD market (a) AD Category-I banks may undertake trading in all permitted exchange traded currency derivatives within their Net Open Position Limit (NOPL) subject to limits stipulated by the exchanges (for the purpose of risk management and preserving market integrity) provided that any synthetic USD-INR position created using a combination of exchange traded FCY- INR and cross-currency contracts shall have to be within the position limit prescribed by the exchange for the USD-INR contract. (b) AD Category-I banks may net / offset their positions in the ETCD market against the positions in the OTC derivatives markets. Keeping in view the volatility in the foreign exchange market, Reserve Bank may however stipulate a separate sub-limit of the NOPL (as a percentage thereof) exclusively for the OTC market as and when required. PART B ACCOUNTS OF NON-RESIDENT BANKS 1. General (i) Credit to the account of a non-resident bank is a permitted method of payment to non-residents and is, therefore, subject to the regulations applicable to transfers in foreign currency. (ii) Debit to the account of a non-resident bank is in effect an inward remittance in foreign currency. 2. Rupee Accounts of Non-Resident Banks AD Category I banks may open/close Rupee accounts (non-interest bearing) in the names of their overseas branches or correspondents without prior reference to the Reserve Bank. Opening of Rupee accounts in the names of branches of Pakistani banks operating outside Pakistan requires specific approval of the Reserve Bank. 3. Funding of Accounts of Non-resident Banks (i) AD Category I banks may freely purchase foreign currency from their overseas correspondents/branches at on-going market rates to lay down funds in their accounts for meeting their bonafide needs in India. (ii) Transactions in the accounts should be closely monitored to ensure that overseas banks do not take a speculative view on the Rupee. Any such instances should be notified to the Reserve Bank. NOTE: Forward purchase or sale of foreign currencies against Rupees for funding is prohibited. Offer of two-way quotes in Rupees to non-resident banks is also prohibited. 4. Transfers from other Accounts Transfer of funds between the accounts of the same bank or different banks is freely permitted. 5. Conversion of Rupees into Foreign Currencies Balances held in Rupee accounts of non-resident banks may be freely converted into foreign currency. All such transactions should be recorded in Form A2 and the corresponding debit to the account should be in form A3 under the relevant Returns. 6. Responsibilities of Paying and Receiving Banks In the case of credit to accounts the paying banker should ensure that all regulatory requirements are met and are correctly furnished in form A1/A2 as the case may be. 7. Refund of Rupee Remittances Requests for cancellation or refund of inward remittances may be complied with without reference to Reserve Bank after satisfying themselves that the refunds are not being made in cover of transactions of compensatory nature. 8. Overdrafts / Loans to Overseas Branches/ Correspondents (i) AD Category I banks may permit their overseas branches/ correspondents temporary overdrawals not exceeding Rs.500 lakhs in aggregate, for meeting normal business requirements. This limit applies to the amount outstanding against all overseas branches and correspondents in the books of all the branches of the authorised AD Category I bank in India. This facility should not be used to postpone funding of accounts. If overdrafts in excess of the above limit are not adjusted within five days a report should be submitted to the Chief General Manager, Financial Markets Regulation Department, Reserve Bank of India, Central Office, 9th Floor, Central Office Building, Shahid Bhagat Singh Road, Fort, Mumbai – 400 001 within 15 days from the close of the month, stating the reasons thereof. Such a report is not necessary if arrangements exist for value dating. (ii) AD Category I bank wishing to extend any other credit facility in excess of (i) above to overseas banks should seek prior approval from the Chief General Manager, Financial Markets Regulation Department, Reserve Bank of India, Central Office. 9. Rupee Accounts of Exchange Houses Opening of Rupee accounts in the names of Exchange Houses for facilitating private remittances into India requires approval of the Reserve Bank. Remittances through Exchange Houses for financing trade transactions are permitted upto Rs.15,00,000 per transaction17. PART C INTER-BANK FOREIGN EXCHANGE DEALINGS 1. General The Board of Directors of AD Category I banks should frame an appropriate policy and fix suitable limits for various Treasury functions. 2. Position and Gaps The net overnight open exchange position (Annex-I) and the aggregate gap limits should be communicated to the Reserve Bank soon after the approval of the Board / Management Committee. 3. Inter-bank Transactions Subject to compliance with the provisions of paragraphs 1 and 2, AD Category I banks may freely undertake foreign exchange transactions as under: a) With AD Category I banks in India: (i) Buying/Selling/Swapping foreign currency against Rupees or another foreign currency. (ii) Placing/Accepting deposits and Borrowing/Lending in foreign currency. b). With banks overseas and Off-shore Banking Units in Special Economic Zones (i) Buying/Selling/Swapping foreign currency against another foreign currency to cover client transactions or for adjustment of own position, (ii) Initiating trading positions in the overseas markets. NOTE : A. Funding of accounts of Non-resident banks - please refer to paragraph 3 of Part B. B. Form A2 need not be completed for sales in the inter-bank market, but all such transactions shall be reported to Reserve Bank in R Returns. 4. Foreign Currency Accounts/ Investments in Overseas Markets (i) Inflows into foreign currency accounts arise primarily from client-related transactions, swap deals, deposits, borrowings, etc. AD Category I banks may maintain balances in foreign currencies up to the levels approved by the Board. They are free to manage the surplus in these accounts through overnight placement and investments with their overseas branches/correspondents subject to adherence to the gap limits approved by the Reserve Bank. (ii) AD Category I banks are free to undertake investments in overseas markets up to the limits approved by their Board. Such investments may be made in overseas money market instruments and/or debt instruments issued by a foreign state with a residual maturity of less than one year and rated at least as AA (-) by Standard & Poor / FITCH IBCA or Aa3 by Moody's. For the purpose of investments in debt instruments other than the money market instruments of any foreign state, bank's Board may lay down country ratings and country - wise limits separately wherever necessary. NOTE: For the purpose of this clause, 'money market instrument' would include any debt instrument whose life to maturity does not exceed one year as on the date of purchase. (iii) AD Category I banks may also invest the un-deployed FCNR (B) funds in overseas markets in long-term fixed income securities subject to the condition that the maturity of the securities invested in do not exceed the maturity of the underlying FCNR (B) deposits. (iv) Foreign currency funds representing surpluses in the nostro accounts may be utilised for: a) making loans to resident constituents for meeting their foreign exchange requirements or for the Rupee working capital/capital expenditure needs of exporters/ corporates who have a natural hedge or a risk management policy for managing the exchange risk subject to the prudential/interest-rate norms, credit discipline and credit monitoring guidelines in force. b) extending credit facilities to Indian wholly owned subsidiaries/ joint ventures abroad in which at least 51 per cent equity is held by a resident company, subject to the guidelines issued by Reserve Bank (Department of Banking Regulation). (v) AD Category I banks may write-off/transfer to unclaimed balances account, un-reconciled debit/credit entries as per instructions issued by Department of Banking Regulation, from time to time. 5. Loans/Overdrafts a) All categories of overseas foreign currency borrowings of AD Category I banks, (except for borrowings at (c) below), including existing External Commercial Borrowings and loans/overdrafts from their Head Office, overseas branches and correspondents outside India, International / Multilateral Financial Institutions [see (e) below] or any other entity as permitted by Reserve Bank of India and overdrafts in nostro accounts (not adjusted within five days), shall not exceed 100 per cent of their unimpaired Tier I capital or USD 10 million (or its equivalent), whichever is higher subject to conditions laid down in (f) below. The aforesaid limit applies to the aggregate amount availed of by all the offices and branches in India from all their branches/correspondents abroad and also includes overseas borrowings in gold for funding domestic gold loans (cf. DBOD circular No.IBD.BC.33/23.67.001/2005-06 dated September 5, 2005). If drawals in excess of the above limit are not adjusted within five days, a report, as per the format in Annex-VIII, should be submitted to the Chief General Manager, Financial Markets Regulation Department, Reserve Bank of India, Central Office, 9th Floor, Central Office Building, Shahid Bhagat Singh Road, Fort, Mumbai – 400 001, within 15 days from the close of the month in which the limit was exceeded. Such a report is not necessary if arrangements exist for value dating. b) The funds so raised may be used for purposes other than lending in foreign currency to constituents in India and repaid without reference to the Reserve Bank. As an exception to this rule, AD Category I banks are permitted to use borrowed funds as also foreign currency funds received through swaps for granting foreign currency loans for export credit in terms of IECD Circular No 12/04.02.02/2002-03 dated January 31, 2003. Any fresh borrowing above this limit shall be made only with the prior approval of the Reserve Bank. Applications for fresh ECBs should be made as per the current ECB Policy. c) The following borrowings would continue to be outside the limit of 100 per cent of unimpaired Tier I capital or USD 10 million (or its equivalent), whichever is higher: i).Overseas borrowings by AD Category I banks for the purpose of financing export credit subject to the conditions prescribed in DBOD Master Circular dated July 2, 2015 on Rupee / Foreign Currency Export Credit & Customer Service To Exporters. ii).Subordinated debt placed by head offices of foreign banks with their branches in India as Tier II capital. iii) Capital funds raised/augmented by the issue of Innovative Perpetual Debt Instruments and Debt Capital Instruments, in foreign currency, in terms of Circulars DBOD. No. BP.BC.57/21.01.002/2005-06 dated January 25, 2006, DBOD. No. BP.BC.23/21.01.002/2006-07 dated July 21, 2006 and Perpetual Debt Instruments and Debt Capital Instruments in foreign currency issued in terms of circular DBOD.No.BP.BC.98/21.06.201/2011-12 dated May 2, 2012. iv) Any other overseas borrowing with the specific approval of the Reserve Bank. d) Interest on loans/overdrafts may be remitted (net of taxes) without the prior approval of Reserve Bank. e) 18AD category-I banks may borrow only from International / Multilateral Financial Institutions in which Government of India is a shareholding member or which have been established by more than one government or have shareholding by more than one government and other international organizations. f) The borrowings beyond 50 per cent of unimpaired Tier I capital of AD Category – I banks will be subject to the following conditions: (i) The bank should have a Board approved policy on overseas borrowings which shall contain the risk management practices that the bank would adhere to while borrowing abroad in foreign currency. (ii) The bank should maintain a CRAR of 12.0 per cent. (iii) The borrowings beyond the existing ceiling shall be with a minimum maturity of three years. (iv) All other existing norms (FEMA regulations, NOPL norms, etc) shall continue to be applicable. 196. Customer and inter-bank transactions beyond onshore market hours Authorised dealers may undertake customer (persons resident in India and persons resident outside India) and inter-bank transactions beyond onshore market hours. Transactions with persons resident outside India, through their foreign branches and subsidiaries may also be undertaken beyond onshore market hours. PART-D Writing of Covered Call and Put Currency Option contracts by Indian exporters and importers of goods and services20 Participants a. Market-makers: AD Category-I banks in India who have Reserve Bank’s approval to run cross-currency and foreign currency-Indian Rupee options books. b. Users: Listed companies and their subsidiaries/joint ventures/associates having common treasury and consolidated balance sheet or unlisted companies with a minimum net worth of Rs. 200 crore provided appropriate disclosures are made in the financial statements as prescribed by the Institute of Chartered Accountants of India (ICAI). 2. Product a. Covered Call: A resident exporter may write (sell) a standalone plain vanilla European call option contract to an AD Category-I bank in India against the cover of contracted exposure arising out of exports of goods and services from India. b. Covered Put: A resident importer may write (sell) a standalone plain vanilla European put option contract to an AD Category-I bank in India against the cover of contracted exposure arising out of imports of goods and services into India. c. The use of Covered option shall not be considered as a hedging strategy. d. Being a combination of an underlying cash instrument and a generic derivative product, covered call and covered put options shall be treated as structured derivative products in terms of the Comprehensive Guidelines on Derivatives issued vide Circular DBOD.No.BP.BC. 86/21.04.157/2006-07 dated April 20, 2007, as amended from time to time. Operational guidelines, terms and conditions a. All the guidelines governing derivative products in general and structured products in particular of the circular mentioned in para. (2)(d) above and subsequent amendments thereof will apply, mutatis mutandis, to covered options. b. AD Category-I banks may enter into covered options with their exporter or importer constituents only after obtaining specific approval in this regard from their competent authority (Board / Risk Committee / ALCO) as per the guidelines on running Cross Currency and Foreign Currency – INR options book mentioned in Part-A, Section I of this Master Direction. c. The responsibility of assessing the strength of risk management systems, financial soundness of the option writer shall rest with the concerned AD Cat-I bank. AD Category I banks may stipulate safeguards, such as, continuous profitability, higher net worth, turnover, etc. depending on the scale of forex operations and risk profile of the option writers. d. Covered options may be written against either a portion or the full value of the underlying. e. AD Cat-I banks shall treat the exposures against which a covered option has been written as an “unhedged exposure”. Accordingly, the guidelines issued vide Reserve Bank Circular DBOD.No.BP.BC. 85/21.06.200/2013-14 dated January 15, 2014 on Capital and Provisioning Requirements for Exposures to entities with Unhedged Foreign Currency Exposure shall apply. f. Covered option contracts may be written for a period up to the maturity of the underlying subject to a maximum maturity period of 12 month. g. Covered options may be freely cancelled and rebooked subject to the verification of the underlying by the AD Cat-I bank concerned. h. For eligible underlying contracted exposures, the option seller may write the covered option either as a single FCY-INR option or as separate options for the FCYUSD and USD-INR legs. i. The operational guidelines and terms and conditions as laid down under “Contracted Exposures” – Forward Foreign Exchange Contracts, Cross Currency Options (not involving Rupee) and Foreign Currency-INR Options in Part – A, Section I (A) of this Master Direction shall be applicable to covered options to the extent relevant. j. Except as mentioned in these guidelines, covered options shall not be undertaken in combination with any other derivative or cash instrument. k. As provided under Comprehensive Guidelines on Derivatives, as amended from time to time, authorised dealers may maintain cash margin / liquid collateral in respect of covered options sold to them by exporters and importers, if necessary. l. AD Cat-I banks entering into covered options with their constituents may report the same to CCIL’s reporting platform for OTC foreign exchange derivatives in terms of our circular FMD.MSRG.No.75/02.05.002/2012-13 dated March 13, 2013, as amended from time to time. 4. In addition to the above, “General Instructions for OTC forex derivative contracts entered by Residents in India,” as laid down under Section (I)(B) in Part-A of this Master Direction shall be applicable, mutatis mutandis, to covered options. PART E i) The Head/Principal Office of each AD Category-I banks should submit daily statements of Foreign Exchange Turnover in Form FTD and Gaps, Position and Cash Balances in Form GPB through the Online Returns Filing System (ORFS) as per the format given in Annex-II. ii) [Removed]21 iii) AD Category-I banks should consolidate the data on cross currency derivative transactions undertaken by residents and submit half-yearly reports (June and December) as per the format given in Annex-IV. The report may also be forwarded by e-mail so as to reach the Department by the 10th of the following month. iv) AD Category-I banks should forward details of exposures in foreign exchange as at the end of every quarter as per the format given in Annex-V. ADs should submit this report as per the revised format online only from quarter ended September 2013 through the Extensible Business Reporting Language (XBRL) system which may be accessed at https://secweb.rbi.org.in/orfsxbrl/. AD Category – I banks which require login ID / passwords for accessing XBRL system may submit their e-mail addresses and contact numbers to e-mail. Please note that details of exposures of all corporate clients who meet the prescribed criteria have to be included in the report. The AD banks should submit this report based on bank's books and not based on corporate returns. v) Authorised Dealers Category I should forward details of option transactions (FCY-INR) undertaken on a weekly basis as per the format given in Annex VIII. The report may also be forwarded by e-mail so as to reach the Department by the 10th of the following month. vi) AD Category-I banks have to report their total outstanding foreign currency borrowings under all categories as on the last Friday of every month as per the format given in Annex-IX. The report should be received by the 10th of the following month. The report may also be forwarded by e-mail so as to reach the Department by the 10th of the following month. vii) AD Category-I banks are required to submit a monthly report (as on the last Friday of every month) on the limits granted and utilized by their constituents under the facility of booking forward contracts on past performance basis, as per the format given in Annex-X. The report may also be forwarded by e-mail so as to reach the Department by the 10th of the following month. viii) The Head/Principal Office of each AD Category-I banks should submit a statement in form BAL giving details of their holdings of all foreign currencies on fortnightly basis through the web portal at https://bop.rbi.org.in as per the format given in Annex III22 within seven calendar days from the close of the reporting period to which it relates. ix) A monthly statement should be furnished before the 10th of the succeeding month, in respect of cover taken by FPI, indicating the name of the FPI / fund, the eligible amount of cover, the actual cover taken, etc. as per the format in Annex XIII. The report may also be forwarded by e-mail so as to reach the Department by the 10th of the following month. x) The Head/Principal Office of each AD Category-I banks should furnish an up-to-date list (in triplicate) of all its offices/branches, which are maintaining Rupee accounts of non-resident banks as at the end of December every year giving their code numbers allotted by Reserve Bank. The list should be submitted before 15th January of the following year. The offices/branches should be classified according to area of jurisdiction of Reserve Bank Offices within which they are situated. The report may also be forwarded by e-mail so as to reach the Department by the 10th of the following month. xi) AD Category – I banks are required to submit a quarterly report on the forward contracts booked & cancelled by SMEs and Resident Individuals, Firms and Companies within the first week of the following month, as per format given in Annex XIV. The report may also be forwarded by e-mail so as to reach the Department by the 10th of the following month. xii) Authorised Dealers should consolidate the data on the transactions undertaken by non-residents under the scheme and submit quarterly reports as per the format indicated in the Annex XIX. The report may also be forwarded by e-mail so as to reach the Department by the 10th of the following month. xiii) Authorised Dealers should report on a quarterly basis, doubtful transactions involving frequent cancellation of hedge transactions and / or the underlying trade transactions by non-residents under the scheme as per the format indicated in the Annex XX. The report may also be forwarded by e-mail so as to reach the Department by the 10th of the following month. Reports are to be sent to The Chief General Manager, Financial Markets Regulation Department Reserve Bank of India, Central Office, 9th Floor, Central Office Building, Shahid Bhagat Singh Road, Fort, Mumbai - 400 001 unless otherwise specified. Reports may be sent preferably through e-mail. [See Part C, Paragraph 2] A. Guidelines for Foreign Exchange Exposure Limits of Authorised Dealers Category – I The Foreign Exchange Exposure Limits of Authorised Dealers would be dual in nature.
For banks incorporated in India, the exposure limits fixed by the Board should be the aggregate for all branches including their overseas branches and Off-shore Banking Units. For foreign banks, the limits will cover only their branches in India. i. Net Overnight Open Position Limit (NOOPL) for calculation of capital charge on forex risk NOOPL may be fixed by the boards of the respective banks and communicated to the Reserve Bank immediately. However, such limits should not exceed 25 percent of the total capital (Tier I and Tier II capital) of the bank. The Net Open position may be calculated as per the method given below: 1. Calculation of the Net Open Position in a Single Currency The open position must first be measured separately for each foreign currency. The open position in a currency is the sum of (a) the net spot position, (b) the net forward position and (c) the net options position. a) Net Spot Position The net spot position is the difference between foreign currency assets and the liabilities in the balance sheet. This should include all accrued income/expenses. b) Net Forward Position This represents the net of all amounts to be received less all amounts to be paid in the future as a result of foreign exchange transactions which have been concluded. These transactions, which are recorded as off-balance sheet items in the bank's books, would include:
c) Net Options Position The options position is the "delta-equivalent" spot currency position as reflected in the authorized dealer's options risk management system, and includes any delta hedges in place which have not already been included under 1(a) or 1(b) (i) and (ii) above. 2. Calculation of the Overall Net Open Position This involves measurement of risks inherent in a bank's mix of long and short position in different currencies. It has been decided to adopt the "shorthand method" which is accepted internationally for arriving at the overall net open position. Banks may, therefore, calculate the overall net open position as follows: i. Calculate the net open position in each currency (paragraph 1 above). ii. Calculate the net open position in gold. iii. Convert the net position in various currencies and gold into Rupees in terms of existing RBI / FEDAI Guidelines. All derivative transactions including forward exchange contracts should be reported on the basis of Present Value (PV) adjustment. iv. Arrive at the sum of all the net short positions. v. Arrive at the sum of all the net long positions. Overall net foreign exchange position is the higher of (iv) or (v). The overall net foreign exchange position arrived at as above must be kept within the limit approved by the bank’s Board. Note: Authorised Dealer banks should report all derivative transactions including forward exchange contracts on the basis of PV adjustment for the purpose of calculation of the net open position. Authorised Dealer banks may select their own yield curve for the purpose of PV adjustments. The banks however should have an internal policy approved by its ALCO regarding the yield curve/(s) to be used and apply it on a consistent basis. 3. Offshore exposures For banks with overseas presence, the offshore exposures should be calculated on a standalone basis as per the above method and should not be netted with onshore exposures. The aggregate limit (on-shore + off-shore) may be termed Net Overnight open Position (NOOP) and will be subjected to capital charge. Accumulated surplus of foreign branches need not be reckoned for calculation of open position. An illustrative example is as follows: If a bank has, let us say three foreign branches and the three branches have open position as below- Branch A: + Rs 15 crores Branch B: + Rs 5 crores Branch C: - Rs 12 crores The open position for the overseas branches taken together would be Rs 20 crores. 4. Capital23 Requirement As prescribed by the Reserve Bank from time to time 5. Other Guidelines i. ALCO / Internal Audit Committee of the Authorized Dealers should monitor the utilization of and adherence to the limits. ii. Authorized Dealers should also have a system in place to demonstrate, whenever required, the various components of the NOOP as prescribed in the guidelines for verification by Reserve Bank. iii. Transactions undertaken by Authorized Dealers till the end of business day may be computed for calculation of Foreign Exchange Exposure Limits. The transactions undertaken after the end of business day may be taken into the positions for the next day. The end of day time may be approved by the bank’s Board. ii. Limit for positions involving Rupee as one of the currencies (NOP-INR) for exchange rate management
B. Aggregate Gap Limits (AGL) i. AGL may be fixed by the boards of the respective banks and communicated to the Reserve Bank immediately. However, such limits should not exceed 6 times the total capital (Tier I and Tier II capital) of the bank. ii. However, Authorised Dealers which have instituted superior measures such as tenor wise PV01 limits and VaR to aggregate foreign exchange gap risks are allowed to fix their own PV01 and VaR limits based on their capital, risk bearing capacity etc. in place of AGL and communicate the same to the Reserve Bank. The procedure and calculation of the limit should be clearly documented as an internal policy and strictly adhered to. [see Part E, paragraph (i)] Reporting of Forex Turnover Data - FTD and GPB The guidelines and formats for preparation of the FTD and GPB reports are given below. AD Category-I banks may ensure that the reports are properly compiled on the basis of these guidelines: The data for a particular date has to reach us by the close of business of the following working day. FTD 1. SPOT - Cash and tom transactions are to be included under ‘Spot’ transactions. 2. SWAP - Only foreign exchange swaps between authorised dealers category-I should be reported under swap transactions. Long term swaps (both cross currency and foreign currency-Rupee swaps) should not be included in this report. Swap transactions should be reported only once and should not be included under either the ‘spot’ or ‘forward’ transactions. Buy/Sell swaps should be included in the ‘Purchase’ side under ‘Swaps’ while Sell/buy swaps should figure on the ‘Sale’ side. 3. Cancellation of forwards - The amount required to be reported under cancellation of forward contracts against purchases from merchants should be the aggregate of cancelled forward merchant sale contracts by authorised dealers category-I (adding to the supply in the market). On the sale side of cancelled forward contracts, aggregate of the cancelled forward purchase contracts should be indicated (adding to the demand in the market). 4 ‘FCY/FCY’ transactions - Both the legs of the transactions should be reported in the respective columns. For example in a EUR/USD purchase contract, the EUR amount should be included in the purchase side while the USD amount should be included in the sale side. 5. Transactions with RBI should be included in inter-bank transactions. Transactions with financial institutions other than banks authorised to deal in foreign exchange should be included under merchant transactions. GPB 1. Foreign Currency Balances - Cash balances and investments in all foreign currencies should be converted into US dollars and reported under this head. 2. Net open exchange position- This should indicate the overall overnight net open exchange position of the authorised dealer category-I in Rs. Crore. The net overnight open position should be calculated on the basis of the instructions given in Annex I. 3. Of the above FCY/INR- The amount to be reported is the position against the Rupee- i.e. the net overnight open exchange position less cross currency position, if any. Formats of FTD and GPB Statements FTD Statement showing daily turnover of foreign exchange dated………
GPB Statement showing gaps, position and cash balances as on………..
FOREIGN CURRENCY MATURITY MISMATCH (IN USD MILLION)
[see Part E, paragraph (iii)] Cross- currency derivative transactions statement
[see Part E , paragraph (iv)] Information relating to exposures in foreign currency as on ___________
Note: AD Category – I banks should submit the above quarterly report as per the revised format online only from quarter ended September 2013 through the Extensible Business Reporting Language (XBRL) system which may be accessed at https://secweb.rbi.org.in/orfsxbrl/. [See Part A Section 1 paragraph 2(g)(ii)] Format of Declaration of amounts booked/cancelled under Past Performance facility [On letterhead of the Company] Date : To, (Name and address of the Bank) Dear Sir, Sub : Declaration of amounts booked/cancelled under Past Performance facility We refer to the facility of booking of Forward or Option Contracts involving Foreign Exchange, based on the past performance facility with Authorised Dealer Category I Banks (AD Category I Banks), more specifically in relation to the undertaking submitted by us to you, dated [ ] in this regard ("Undertaking"). In accordance with the said Undertaking, we hereby furnish a declaration regarding the amounts of the transactions booked by us with all AD Category I banks. We are availing the past performance limit with the following AD Category I banks : …………………………………. Please find below the information regarding amounts booked / cancelled with all AD Category I Banks under the said past performance facility as permitted under the FEMA Regulations :
Thanking you, Yours faithfully, For XXXXXX (Chief Financial Officer) [See Part A, Section I, paragraph 2(g)(iv)] Format for Declaration for utilization of past performance limits in excess of 50 per cent and details of import / export turnover, overdues, etc. [On letterhead of the Company] To, Dear Sir, Sub: Declaration for utilisation of past performance limits in excess of 50 per cent and details of import / export turnover, overdues, etc.
Yours faithfully, For XXXXXX (Chief Financial Officer) [see Part E , paragraph (v)] FCY/Rupee Option transactions For the week ended__________________ A. Option Transaction Report
II. Option Positions Report
Total Net Open Options Position (INR): The total net open options position can be arrived using the methodology prescribed in A. P. (DIR Series) Circular No. 92 dated April 4, 2003. III. Change in Portfolio Delta Report Change in USD-INR delta for a 0.25% change in spot ($-appreciation) in INR terms = Change in USD-INR delta for a 0.25% change in spot ($-depreciation) in INR terms = Similarly, Change in delta for a 0.25% change in spot (FCY appreciation & depreciation separately) in INR terms for other currency pairs, such as EUR-INR, JPY-INR etc. IV. Strike Concentration Report
This report should be prepared for a range of 150 paise around current spot level. Cumulative positions to be given. All amounts in USD million. When the bank owns an option, the amount should be shown as positive. When the bank has sold an option, the amount should be shown as negative. All reports may be sent via e-mail by market-makers. Reports may be prepared as of every Friday and sent by the following Monday. [See Part C, paragraph 5 (a)] Overseas foreign currency borrowings –Report as on ……….. Amount (in equivalent USD* Million)
[Removed]24 [Removed]25 [see Part A ,Section II, paragraph 1] Statement – Details of Forward cover undertaken by FPI clients Month – Part A – Details of forward cover (without rebooking) outstanding Name of FPI Current Market Value (USD mio)
Part B – Details of transactions permitted to be cancelled and rebooked Name of FPI Market Value as determined at start of year (USD mio)
Name of the AD Category – I bank: Signature of the Authorised official: Date : Stamp : [A. P. (DIR Series) Circular No. 15, dated October 29, 2007 & A.P. (DIR Series) Circular No. 20 , dated October 8, 2015] [see Part A, Section I, para 3(ii)(c)] Application cum Declaration for booking of forward contracts / options up to USD 1,000,000 by Resident Individuals, Firms and Companies (To be completed by the applicant) I. Details of the applicant a. Name ………………………….. b. Address………………………… c. Account No…………………….. d. PAN No…………………………. II. Details of the foreign exchange forward / FCY-INR options contracts required 1. Amount (Specify currency pair) ……………………………… 2. Tenor …………………………………………………. III. Notional value of forward / FCY-INR contracts outstanding as on date ………. IV. Details of actual / anticipated remittances 1. Amount: 2. Remittance Schedule: 3. Purpose: Declaration I, ………………. …………(Name of the applicant), hereby declare that the total amount of foreign exchange forward / FCY-INR options contracts booked with the ---------------(designated branch) of ------------------(bank) in India is within the limit of USD 1,000,000/- (US Dollar One Million only) and certify that the above derivative contracts are meant for undertaking permitted current and / or capital account transactions. I also certify that I have not booked foreign exchange forward / FCY-INR options contracts with any other bank / branch. I have understood the risks inherent in booking of foreign exchange forward contracts / FCY-INR options contracts. Signature of the applicant Place: Date: Certificate by the Authorised Dealer Category – I bank This is to certify that the customer …………(Name of the applicant) having PAN No.……. has been maintaining an account ……..(no.) with us since ……..* We certify that the customer meets the AML / KYC guidelines laid down by RBI and confirm having carried out requisite suitability and appropriateness test. Name and designation of the authorized official: Place: Signature: Date: Stamp and seal * month / year [Removed]26 [Removed]27 Know Your Customer (KYC) Form in respect of the non-resident exporter/importer
We confirm that all the information furnished above is true and accurate as provided by the overseas remitting bank of the non-resident exporter/importer. (Signature of the Authorised Official of the AD bank) Date: Place: Stamp: Reporting of Derivative transactions undertaken by non-resident importer / exporter – for the quarter ended Name of the AD Category I Bank –
Reporting of suspicious transactions undertaken by non-resident importer / exporter – for the quarter ended ___________ Name of the AD Category I Bank –
List of Notifications which have been consolidated in the Master Direction - Risk Management and Inter-Bank Dealings List of circulars which have been consolidated in the Master Direction - Risk Management and Inter-Bank Dealings These circulars should be read in conjunction with FEMA, 1999 and the Rules/Regulations/Directions/Orders/Notifications issued thereunder. 1 A European option may be exercised only at the expiry date of the option, i.e. at a single pre-defined point in time. 2 A. P. (DIR Series) Circular No. 28 dated November 5, 2015 3 A.P. (DIR Series) Circular No. 78 dated February 13, 2015 4 SME as defined by the Rural Planning and Credit Department, Reserve Bank of India vide circular RPCD.PLNS. BC.No.63/06.02.31/2006-07 dated April 4, 2007. 5Rupee denominated bonds issued overseas may be hedged provided it is permitted under contracted exposure hedging. 6 Standardized format will be devised by Foreign Exchange Dealers Association of India (FEDAI) and will include details like transaction type, i.e. current account (import, export) or capital account (ECB, FPI, FDI etc.), amount, currency and tenor. 7 A.P. (DIR Series) No. 35 dated December 10, 2015 containing Amendment Directions issued under RBI Act, 1934 for introduction of cross-currency futures and options and exchange traded options in EUR-INR, GBP-INR and JPY-INR currency pairs. 8 A.P. (DIR Series) No. 35 dated December 10, 2015 containing Amendment Directions issued under RBI Act, 1934 for introduction of cross-currency futures and options and exchange traded options in EUR-INR, GBP-INR and JPY-INR currency pairs. 9 A.P. (DIR Series) Circular No. 30 dated February 2, 2017 10 A. P. (DIR Series) Circular No. 8 dated October 12, 2017. 11 A. P. (DIR Series) Circular No. 8 dated October 12, 2017. 12 A. P. (DIR Series) Circular No. 8 dated October 12, 2017. 13 In terms of A.P. (DIR Series) Circular No. 25 dated September 3, 2014 and A.P. (DIR Series) Circular No. 103 dated May 21, 2015 14 Refer A.P. (DIR Series) Circular No. 41 dated March 21, 2017 15 Rupee denominated bonds issued overseas may be hedged provided it is permitted under contracted exposure hedging. 16 Standardized format will be devised by Foreign Exchange Dealers Association of India (FEDAI) and will include details like transaction type, i.e. current account (import, export) or capital account (ECB, FPI, FDI etc.), amount, currency and tenor. 17 A. P. (DIR Series) Circular No. 102 May 21, 2015 18 A.P. (DIR Series) Circular No. 112 dated June 25, 2015 19 A.P. (DIR Series) Circular No. 15 dated January 06, 2020 20 A.P. (DIR Series) Circular No. 78 dated June 23, 2016. Guidelines on Covered Options which is not considered a hedging / risk management strategy are included under this Master Direction so there is a single reference document in respect of foreign exchange derivatives. 21A. P. (DIR Series) Circular No. 3 dated August 10, 2017 22A. P. (DIR Series) Circular No. 3 dated August 10, 2017 23 Capital refers to Tier I capital as per instructions issued by Reserve Bank of India (Department of Banking Operations and Development). 24 RBI/2017-18/138 A.P. (DIR Series) Circular No. 19 dated March 12, 2018 25 RBI/2017-18/138 A.P. (DIR Series) Circular No. 19 dated March 12, 2018 26 RBI/2017-18/138 A.P. (DIR Series) Circular No. 19 dated March 12, 2018 27 RBI/2017-18/138 A.P. (DIR Series) Circular No. 19 dated March 12, 2018 |
RBI/FMRD/2016-17/31 July 5, 2016 All Authorised Dealers - Category I Banks Madam / Sir, Master Direction - Risk Management and Inter-Bank Dealings In exercise of the powers conferred by clause (h) of sub-section (2) of section 47 of the Foreign Exchange Management Act (FEMA), 1999 (42 of 1999), the Reserve Bank has framed regulations to promote orderly development and maintenance of foreign exchange market in India through Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 Notification No. FEMA 25/RB-2000 dated May 3, 2000 and subsequent amendments thereto. Attention is also drawn to provisions in Notification No. FEMA 1/2000-RB, Regulation 4(2) of Notification No. FEMA 3/RB-2000 and subsequent amendments thereto. All of the above govern the Foreign Exchange Derivative Contracts, Overseas Commodity & Freight Hedging, Rupee Accounts of Non-Resident Banks and Inter-Bank Foreign Exchange Dealings etc. These Regulations are amended from time to time to incorporate the changes in the regulatory framework and published through amendment notifications. 2. Within the contours of the Regulations, the Reserve Bank issues directions to Authorised Persons under Section 11 of the Foreign Exchange Management Act (FEMA), 1999. These directions lay down the modalities as to how the foreign exchange business has to be conducted by the Authorised Persons with their customers / constituents with a view to implementing the regulations framed. 3. Instructions issued in respect of Foreign Exchange Derivative Contracts, Overseas Commodity & Freight Hedging, Rupee Accounts of Non-Resident Banks and Inter-Bank Foreign Exchange Dealings etc. have been compiled in this Master Direction. The list of underlying notifications / circulars which form the basis of this Master Direction is furnished in the Appendix. 4. It may be noted that, whenever necessary, Reserve Bank shall issue directions to Authorised Persons through A.P. (DIR Series) Circulars in regard to any change in the Regulations or the manner in which relative transactions are to be conducted by the Authorised Persons with their customers/ constituents. The Master Direction issued herewith shall be amended suitably simultaneously. Yours faithfully, (T Rabi Sankar) PART – A SECTION I Facilities for Persons Resident in India other than Authorised Dealers Category-I The facilities for persons resident in India (other than AD Category I banks) are elaborated under paragraphs A and B. Paragraph A describes the products and operational guidelines for the respective product. In addition to the operational guidelines under A, the general instructions that are applicable across all products for residents (other than AD Category I banks) are detailed under Paragraph B. A. Products and Operational Guidelines The product/purpose-wise facilities for persons resident in India (other than AD Category I banks) are detailed under the following subheads: 1) Contracted Exposure 2) Probable Exposure 3) Special Dispensation 1) Contracted Exposures AD Category I banks have to evidence the underlying documents so that the existence of underlying foreign currency exposure can be clearly established. AD Category I banks, through verification of documentary evidence, should be satisfied about the genuineness of the underlying exposure, irrespective of the transaction being a current or a capital account. Full particulars of the contracts should be marked on the original documents under proper authentication and retained for verification. However, in cases where the submission of original documents is not possible, a copy of the original documents, duly certified by an authorized official of the user, may be obtained. In either of the cases, before offering the contract, the AD Category I banks should obtain an undertaking from the customer and also certificates from the statutory auditor (for details refer para B (b) for General Instructions). While details of the underlying have to be recorded at the time of booking the contract, in the view of logistic issues, a maximum period of 15 days may be allowed for production of the documents. If the documents are not submitted by the customer within 15 days, the contract may be cancelled, and the exchange gain, if any, should not be passed on to the customer. In the event of non-submission of the documents by the customer within 15 days on more than three occasions in a financial year, booking of permissible derivative contracts in future may be allowed only against production of the underlying documents, at the time of booking the contract. The products available under this facility are as follows: i) Forward Foreign Exchange Contracts Participants Market-makers - AD Category I banks Users - Persons resident in India Purpose a) To hedge exchange rate risk in respect of transactions for which sale and /or purchase of foreign exchange is permitted under the FEMA 1999, or in terms of the rules/ regulations/directions/orders made or issued there under. b) To hedge exchange rate risk in respect of the market value of overseas direct investments (in equity and loan). i) Contracts covering overseas direct investment (ODI) can be cancelled or rolled over on due dates. If a hedge becomes naked in part or full owing to contraction (due to price movement/impairment) of the market value of the ODI, the hedge may be allowed to continue until maturity, if the customer so desires. Rollovers on due date shall be permitted up to the extent of the market value as on that date. c) To hedge exchange rate risk of transactions denominated in foreign currency but settled in INR, including hedging the economic (currency indexed) exposure of importers in respect of customs duty payable on imports. i) Forward foreign exchange contracts covering such transactions will be settled in cash on maturity. ii) These contracts once cancelled, are not eligible to be rebooked. iii) In the event of any change in the rate(s) of customs duties, due to Government notifications subsequent to the date of the forward contracts, importers may be allowed to cancel and/or rebook the contracts before maturity. Operational Guidelines, Terms and Conditions General principles to be observed for forward foreign exchange contracts. a) The maturity of the hedge should not exceed the maturity of the underlying transaction. The currency of hedge and tenor, subject to the above restrictions, are left to the customer. Where the currency of hedge is different from the currency of the underlying exposure, the risk management policy of the corporate, approved by the Board of the Directors, should permit such type of hedging. b) Where the exact amount of the underlying transaction is not ascertainable, the contract may be booked on the basis of reasonable estimates. However, there should be periodical review of the estimates. c) Foreign currency loans/bonds will be eligible for hedge only after final approval is accorded by the Reserve Bank, where such approval is necessary or Loan Registration Number is allotted by the Reserve Bank. d) Global Depository Receipts (GDRs)/American Depository Receipts (ADRs) will be eligible for hedge only after the issue price has been finalized. e) Balances in the Exchange Earner's Foreign Currency (EEFC) accounts sold forward by the account holders shall remain earmarked for delivery and such contracts shall not be cancelled. They are, however, eligible for rollover, on maturity. f) In case of contracted exposures, forward contracts, involving Rupee as one of the currencies, in respect of all current account transactions as well as capital account transactions with a residual maturity of one year or less may be freely cancelled and rebooked. g) In case of forward contracts involving Rupee as one of the currencies, booked by residents in respect of all hedge transactions, if cancelled with one AD Category I bank can be rebooked with another AD Category I bank subject to the following conditions: (i) the switch is warranted by competitive rates on offer, termination of banking relationship with the AD Category I bank with whom the contract was originally booked; (ii) the cancellation and rebooking are done simultaneously on the maturity date of the contract; and (iii) the responsibility of ensuring that the original contract has been cancelled rests with the AD Category I bank who undertakes rebooking of the contract. h) Forward contracts can be rebooked on cancellation subject to condition (i) below. i) The facility of rebooking should not be permitted unless the corporate has submitted the exposure information as prescribed in Annex V. j) Substitution of contracts for hedging trade transactions may be permitted by an AD Category I bank on being satisfied with the circumstances under which such substitution has become necessary. The AD Category I bank may also verify the amount and tenor of the underlying substituted. ii) Cross Currency Options (not involving Rupee) Participants Market-makers - AD Category I banks as approved for this purpose by the Reserve Bank Users – Persons resident in India Purpose a) To hedge exchange rate risk arising out of trade transactions. b) To hedge the contingent foreign exchange exposure arising out of submission of a tender bid in foreign exchange. Operational Guidelines, Terms and Conditions
iii) Foreign Currency - INR Options Participants Market-makers - AD Category I banks, as approved for this purpose by the Reserve Bank. Users – Persons resident in India Purpose a) To hedge foreign currency exposures in accordance with Schedule I of Notification No. FEMA 25/2000-RB dated May 3, 2000, as amended from time to time. b) To hedge the contingent foreign exchange exposure arising out of submission of a tender bid in foreign exchange. Operational Guidelines, Terms and Conditions a) AD Category I banks having a minimum CRAR of 9 per cent, can offer foreign currency– INR options on a back-to-back basis. b) For the present, AD category I banks can offer only plain vanilla European options. c) Customers can buy call or put options. d) All guidelines applicable for foreign currency-INR foreign exchange forward contracts are applicable to foreign currency-INR option contracts also. e) AD Category I banks having adequate internal control, risk monitoring/ management systems, mark to market mechanism, etc. are permitted to run a foreign currency– INR options book on prior approval from the Reserve Bank, subject to conditions. AD Category I banks desirous of running a foreign currency-INR options book and fulfilling minimum eligibility criteria listed below, may apply to the Reserve Bank with copies of approval from the competent authority (Board/ Risk Committee/ ALCO), detailed memorandum in this regard, specific approval of the Board for the type of option writing and permissible limits. The memorandum put up to the Board should clearly mention the downside risks, among other matters. Minimum Eligibility Criteria:
The Reserve Bank will consider the application and accord a one-time approval at its discretion. AD Category I banks are expected to manage the option portfolio within the Reserve Bank approved risk management limits. f) AD banks may quote the option premium in Rupees or as a percentage of the Rupee/foreign currency notional. g) Option contracts may be settled on maturity either by delivery on spot basis or by net cash settlement in Rupees on spot basis as specified in the contract. In case of unwinding of a transaction prior to the maturity, the contract may be cash settled based on market value of an identical off-setting option. h) Market makers are allowed to hedge the ‘Delta’ of their option portfolio by accessing the spot and forward markets. Other ‘Greeks’ may be hedged by entering into option transactions in the inter-bank market. i) The ‘Delta’ of the option contract would form part of the overnight open position. j) The ‘Delta’ equivalent as at the end of each maturity shall be taken into account for the purpose of AGL. The residual maturity (life) of each outstanding option contract can be taken as the basis for the purpose of grouping under various maturity buckets. k) AD banks running an option book are permitted to initiate plain vanilla cross currency option positions to cover risks arising out of market making in foreign currency-INR options. l) Banks should put in place necessary systems for marking to market the portfolio on a daily basis. FEDAI will publish daily a matrix of polled implied volatility estimates, which market participants can use for marking to market their portfolio. m) The accounting framework for option contracts will be as per FEDAI circular No.SPL-24/FC-Rupee Options/2003 dated May 29, 2003. iv) Foreign Currency-INR Swaps Participants Market-makers – AD Category I banks in India. For2 entering into swaps with Multilateral (MFI) or International Financial Institutions (IFIs) in which Government of India is a shareholder, refer to para. (g) under operational guidelines, terms and conditions. Users – i. Residents having a foreign currency liability and undertaking a foreign currency-INR swap to move from a foreign currency liability to a Rupee liability. ii. Incorporated resident entities having a rupee liability and undertaking an INR – foreign currency swap (INR-FCY) to move from rupee liability to a foreign currency liability, subject to certain minimum prudential requirements, such as risk management systems and natural hedges or economic exposures. In the absence of natural hedges or economic exposures, the INR-foreign currency swap (to move from rupee liability to a foreign currency liability) may be restricted to listed companies or unlisted companies with a minimum net worth of Rs 200 crore. Further, the AD Category I bank is required to examine the suitability and appropriateness of the swap and be satisfied about the financial soundness of the corporate. Purpose To hedge exchange rate and/or interest rate risk exposure for those having long-term foreign currency borrowing or to transform long-term INR borrowing into foreign currency liability. Operational Guidelines, Terms and Conditions a) No swap transactions involving upfront payment of Rupees or its equivalent in any form shall be undertaken. b) The term “long-term exposure” means exposures with residual maturity of one year or more. c) The swap transactions, once cancelled, shall not be rebooked or re-entered, by whichever mechanism or by whatever name called. In3 case of FCY-INR swaps however, where the underlying is still surviving, the client, on cancellation of the swap contract, may be permitted to re‐enter into a fresh swap, to hedge the underlying but only after the expiry of the tenor of the original swap contract that had been cancelled. This flexibility is not permitted for INR-FCY swaps. d) AD Category I banks should not offer leveraged swap structures. Typically, in leveraged swap structures, a multiplicative factor other than unity is attached to the benchmark rate(s), which alters the payables or receivables vis-à-vis the situation in the absence of such a factor. e) The notional principal amount of the swap should not exceed the outstanding amount of the underlying loan. f) The maturity of the swap should not exceed the remaining maturity of the underlying loan. g) For hedging their long term foreign currency borrowings residents may enter in to FCY-INR swaps with Multilateral or International Financial Institutions (MFI/IFI) in which Government of India is a shareholding member subject to the following terms and conditions in addition to (a) to (f) above:
v) Cost Reduction Structures i.e. cross currency option cost reduction structures and foreign currency –INR option cost reduction structures. Participants Market-makers - AD Category I banks Users – Listed companies and their subsidiaries/joint ventures/associates having common treasury and consolidated balance sheet or unlisted companies with a minimum net worth of Rs. 200 croreprovided
(Note: The above accounting treatment is a transitional arrangement till AS 30 / 32 or equivalent standards are notified.)” Purpose To hedge exchange rate risk arising out of trade transactions, External Commercial Borrowings (ECBs) and foreign currency loans availed of domestically against FCNR (B) deposits. Operational Guidelines, Terms and Conditions
vi) Hedging of Borrowings in foreign exchange, which are in accordance with the provisions of Foreign Exchange Management (Borrowing and Lending in Foreign Exchange) Regulations, 2000. Products – Interest rate swap, Cross currency swap, Coupon swap, Cross currency option, Interest rate cap or collar (purchases), Forward rate agreement (FRA) Participants Market-makers – a) AD Category I banks in India b) Branch outside India of an Indian bank authorized to deal in foreign exchange in India c) Offshore banking unit in a SEZ in India. Users – Persons resident in India who have borrowed foreign exchange in accordance with the provisions of Foreign Exchange Management (Borrowing and Lending in Foreign Exchange) Regulations, 2000. Purpose For hedging interest rate risk and currency risk on loan exposure and unwinding from such hedges. Operational Guidelines, Terms and Conditions
2) Probable exposures based on past performance Participants Market-makers – AD Category I banks in India. Users – Importers and exporters of goods and services Purpose To hedge currency risk on the basis of a declaration of an exposure and based on past performance up to the average of the previous three financial years’ (April to March) actual import/export turnover or the previous year’s actual import/export turnover, whichever is higher. Probable exposure based on past performance can be hedged only in respect of trades in merchandise goods as well as services. Products Forward foreign exchange contracts, cross currency options (not involving the rupee), foreign currency-INR options and cost reduction structures [as mentioned in section B para I 1(v)]. Operational Guidelines, Terms and Conditions a) Corporates having a minimum net worth of Rs 200 crores and an annual export and import turnover exceeding Rs 1000 crores and satisfying all other conditions as stipulated in section B para I 1(v) may be allowed to use cost reduction structures. b) The contracts booked during the current financial year (April-March) and the outstanding contracts at any point of time should not exceed
c) Contracts booked up to 75 percent of the eligible limit mentioned at paragraph (b) (i) and (b) (ii) above may be cancelled with the exporter/importer bearing/being entitled to the loss or gain as the case may be. Contracts booked in excess of 75 percent of the eligible limit mentioned at paragraph (b) (i) and (b) (ii) above shall be on a deliverable basis and cannot be cancelled, implying that in the event of cancellation, the exporter/importer shall have to bear the loss but will not be entitled to receive the gain. d) These limits shall be computed separately for import/export transactions. e) Higher limits will be permitted on a case-by-case basis on application to the Chief General Manager, Financial Markets Regulation Department, Reserve Bank of India, Central Office, 1st Floor, Main Building, Shahid Bhagat Singh Road, Fort, Mumbai – 400 001. The additional limits, if sanctioned, shall be on a deliverable basis. f) Any contract booked without producing documentary evidence will be marked off against this limit. These contracts once cancelled, are not eligible to be rebooked. Rollovers are also not permitted. g) AD banks should permit their clients to use the past performance facility only after satisfying themselves that the following conditions are complied with: i. An undertaking may be taken from the customer that supporting documentary evidence will be produced before the maturity of all the contracts booked. ii. Importers and exporters should furnish a quarterly declaration to the AD Category I banks, signed by the Chief Financial Officer (CFO) and the Company Secretary (CS), regarding amounts booked with other AD Category I banks under this facility, as per Annex VI. In the absence of a CS, the Chief Executive Officer (CEO) or the Chief Operating Officer (COO) shall co-sign the undertaking along with the CFO. iii. For an exporter customer to be eligible for this facility, the aggregate of overdue bills shall not exceed 10 per cent of the turnover. iv. Aggregate outstanding contracts in excess of 50 per cent of the eligible limit may be permitted by the AD Category I bank on being satisfied about the genuine requirements of their customers after examination of a document as per the format in Annex VII, signed by the CFO and CS, containing the following:
In the absence of a CS, the CEO or the CFO shall co-sign the undertaking along with the CFO. h) The past performance limits once utilised are not to be reinstated either on cancellation or on maturity of the contracts. i) AD Category I banks must arrive at the past performance limits at the beginning of every financial year. The drawing up of the audited figures (previous year) may require some time at the commencement of the financial year. However, if the statements are not submitted within three months from the last date of the financial year, the facility should not be provided until submission of the audited figures. j) As part of the annual audit exercise, the Statutory Auditor shall certify the following:
k) AD Category I banks must institute appropriate systems for validating the past performance limits at pre-deal stage. In addition to the customer declarations, AD Category I banks should also assess the past transactions with the customers, turnover, etc. l) AD Category I banks are required to submit a monthly report (as on the last Friday of every month) on the limits granted and utilised by their constituents under this facility as prescribed in Annex X. 3) Special Dispensation i) Small and Medium Enterprises (SMEs) Participants Market-makers – AD Category I. Users – Small and Medium Enterprises (SMEs)4 Purpose To hedge direct and / or indirect exposures of SMEs to foreign exchange risk Product Forward foreign exchange contracts Operational Guidelines: Small and Medium Enterprises (SMEs) having direct and / or indirect exposures to foreign exchange risk are permitted to book / cancel / / roll over forward contracts without production of underlying documents to manage their exposures effectively, subject to the following conditions:
ii) Resident Individuals, Firms and Companies Participants Market-makers – AD Category I banks Users: Resident Individuals, Firms and Companies Purpose To hedge their foreign exchange exposures arising out of actual or anticipated remittances, both inward and outward, can book forward contracts, without production of underlying documents, up to a limit of USD 1,000,000 (USD one million), based on self-declaration. Product Forward foreign exchange contracts and FCY-INR options Operational Guidelines, Terms and Conditions a) While the contracts booked under this facility would normally be on a deliverable basis, cancellation and rebooking of contracts are permitted. Based on the track record of the entity, the concerned AD Cat-I bank may, however, call for underlying documents, if considered necessary, at the time of rebooking of cancelled contracts. The notional value of the outstanding contracts should not exceed USD 1,000,000 at any time. b) The contracts may be permitted to be booked up to tenors of one year only. c) Such contracts may be booked through AD Category I banks with whom the resident individual / firm / company has banking relationship, on the basis of an application-cum-declaration in the format given in Annex XV. The AD Category I banks should satisfy themselves that the hedging entities understand the nature of risk inherent in booking of forward contracts or FCY-INR options and should carry out due diligence regarding “user appropriateness” and “suitability” of the forward contracts / FCY-INR options to such customer. iii) Simplified Hedging Facility Users: Resident and non-resident entities, other than individuals. Purpose: To hedge exchange rate risk on transactions, contracted or anticipated, permissible under Foreign Exchange Management Act (FEMA), 19995. Products: Any Over the Counter (OTC) derivative or Exchange Traded Currency Derivative (ETCD) permitted under FEMA, 1999. Cap on Outstanding Contracts: USD 30 million, or its equivalent, on a gross basis. Designated Bank: Any Authorised Dealer Category-I (AD Cat-I) bank designated as such by the user. Operational Guidelines, Terms and Conditions
B. General Instructions for OTC forex derivative contracts entered by Residents in India While the guidelines indicated above govern specific foreign exchange derivatives, certain general principles and safeguards for prudential considerations that are applicable across the OTC foreign exchange derivatives, are detailed below. In addition to the guidelines under the specific foreign exchange derivative product, the general instructions should be followed scrupulously by the users (residents in India other than AD Category I banks) and the market makers (AD Category I banks). For Simplified Hedging Facility, para (a) and (b) below will not be applicable. a) In case of all forex derivative transactions [except INR- foreign currency swaps i.e. moving from INR liability to foreign currency liability as in section B para I(1)(iv)] is undertaken, AD Category I banks must take a declaration from the clients that the exposure is unhedged and has not been hedged with another AD Category I bank. The corporates should provide an annual certificate to the AD Category I bank certifying that the derivative transactions are authorized and that the Board (or the equivalent forum in case of partnership or proprietary firms) is aware of the same. b) In the case of contracted exposure, AD Category I banks must obtain: i) An undertaking from the customer that the same underlying exposure has not been covered with any other AD Category I bank/s. Where hedging of the same exposure is undertaken in parts, with more than one AD Category I bank, the details of amounts already booked with other AD Category I bank/s should be clearly indicated in the declaration. This undertaking can also be obtained as a part of the deal confirmation. ii) An annual certificate from the statutory auditors to the effect that the contracts outstanding with all AD category I banks at any time during the year did not exceed the value of the underlying exposures at that time. It is reiterated, however, that that the AD bank, while entering into any derivative transaction with a client, shall have to obtain an undertaking from the client to the effect that the contracted exposure against which the derivative transaction is being booked has not been used for any derivative transaction with any other AD bank. c) Derived foreign exchange exposures are not permitted to be hedged. However, in case of INR- foreign currency swaps, at the inception, the user can enter into one time plain vanilla cross currency option (not involving Rupee) to cap the currency risk. d) In any derivative contract, the notional amount should not exceed the actual underlying exposure at any point in time. Similarly, the tenor of the derivative contracts should not exceed the tenor of the underlying exposure. The notional amount for the entire transaction over its complete tenor must be calculated and the underlying exposure being hedged must be commensurate with the notional amount of the derivative contract. e) Only one hedge transaction can be booked against a particular exposure/ part thereof for a given time period. f) The term sheet for the derivative transactions (except forward contracts) should also necessarily and clearly mention the following:
g) AD Category I banks can offer only those products that they can price independently. This is also applicable to the products offered even on back to back basis. The pricing of all forex derivative products should be locally demonstrable at all times. h) The market-makers should carry out proper due diligence regarding ‘user appropriateness’ and ‘suitability’ of products before offering derivative products (except forward contracts) to users as detailed in. No.BP.BC. 44 /21.04.157/2011-12 dated November 2, 2011. i) AD Category I may share with the user the various scenario analysis encompassing both the possible upside as well as the downsides and sensitivity analysis identifying the various market parameters that affect the product. j) The provisions of comprehensive guidelines on Derivatives issued vide DBOD.No.BP.BC. 86/21.04.157/2006-07 dated April 20, 2007 and as amended from time to time are also applicable to forex derivatives. k) Sharing of information on derivatives between banks is mandatory and as detailed vide circular DBOD.No.BP.BC.46/08.12.001/2008-09 dated September 19, 2008 and DBOD.No. BP. BC. 94/08.12.001/2008-09 dated December 8, 2008. 4. Currency Futures on recognised Stock /New Exchanges As part of further developing the derivatives market in India and adding to the existing menu of foreign exchange hedging tools available to the residents and non-residents, currency futures contracts have been permitted to be traded in recognized stock exchanges or new exchanges, recognized by the Securities and Exchange Board of India (SEBI) in the country. The currency futures market would function subject to the directions, guidelines, instructions issued by the Reserve Bank and the SEBI, from time to time. Participation in the currency futures market in India is subject to directions contained in the Currency Futures (Reserve Bank) Directions, 2008 [Notification No.FED.1/DG(SG)-2008 dated August 6, 2008] (Directions) and Notification No.FED. 2/ED (HRK)-2009 dated January 19, 2010, as amended7 from time to time, issued by the Reserve Bank of India under Section 45W of the Reserve Bank of India Act, 1934. Currency futures are subject to following conditions: Permission (i) Currency futures are permitted in US Dollar (USD) - Indian Rupee (INR), Euro (EUR)-INR, Japanese Yen (JPY)-INR, Pound Sterling (GBP)-INR, EUR-USD, GBP-USD and USD-JPY. (ii) ‘Persons resident in India’ may purchase or sell currency futures contracts subject to the terms and conditions laid down in paragraph 6 below. (iii) Foreign Portfolio Investors (FPIs) are permitted to enter into currency futures contracts subject to the terms and conditions laid down in Part A, Section II, paragraph no. 2. Features of currency futures Standardized currency futures shall have the following features: a. Foreign Currency-Indian Rupee contracts, viz. USD-INR, EUR-INR, GBP-INR and JPY-INR and Cross Currency contracts (not involving the Indian Rupee), viz. EUR-USD, GBP-USD and USD-JPY are allowed to be traded. b. The size of the USD-INR and USD-JPY contracts shall be USD 1000, of EUR-INR and EUR-USD contracts shall be EUR 1000, of GBP-INR and GBP-USD contracts shall be GBP 1000 and JPY-INR contract shall be JPY 100,000. c. All Foreign Currency-INR contracts shall be quoted and settled in Indian Rupees. EUR-USD and GBP-USD cross currency contracts shall be quoted in USD and USD-JPY contract shall be quoted in JPY. All cross currency contracts shall be settled in Indian Rupees as per the method approved by Reserve Bank. d. The maturity of the contracts shall not exceed 12 months. e. The settlement price for USD-INR shall be the Reserve Bank’s Reference Rate and for Euro-INR, GBP-INR and JPY-INR contracts shall be the exchange rates published by the Reserve Bank in its press release on the last trading day. The settlement price in Indian Rupees of the cross-currency contracts shall be computed using the Reserve Bank’s USD-INR Reference Rate and the corresponding exchange rate published by Reserve Bank for EUR-INR, GBPINR and JPY-INR on the last trading day. Membership (i) The membership of the currency futures market of a recognised stock exchange shall be separate from the membership of the equity derivative segment or the cash segment. Membership for both trading and clearing, in the currency futures market shall be subject to the guidelines issued by the SEBI. (ii) Banks authorized by the Reserve Bank under section 10 of the Foreign Exchange Management Act, 1999 as ‘AD Category - I bank’ are permitted to become trading and clearing members of the currency futures market of the recognized stock exchanges, on their own account and on behalf of their clients, subject to fulfilling the minimum prudential requirements. (iii) AD Category - I banks which do not meet the above minimum prudential requirements and AD Category - I banks which are Urban Co-operative banks or State Co-operative banks can participate in the currency futures market only as clients, subject to approval therefore from the respective regulatory Departments of the Reserve Bank. Position limits i. The position limits for various classes of participants in the currency futures market shall be subject to the guidelines issued by the SEBI. ii. The AD Category - I banks, shall operate within prudential limits, such as Net Open Position (NOP) and Aggregate Gap (AG) limits. Risk Management measures The trading of currency futures shall be subject to maintaining initial, extreme loss and calendar spread margins and the Clearing Corporations / Clearing Houses of the exchanges should ensure maintenance of such margins by the participants on the basis of the guidelines issued by the SEBI from time to time. Surveillance and disclosures The surveillance and disclosures of transactions in the currency futures market shall be carried out in accordance with the guidelines issued by the SEBI. Authorisation to Currency Futures Exchanges / Clearing Corporations Recognized stock exchanges and their respective Clearing Corporations / Clearing Houses shall not deal in or otherwise undertake the business relating to currency futures unless they hold an authorization issued by the Reserve Bank under section 10(1) of the Foreign Exchange Management Act, 1999. 5. Currency Options on recognised Stock /New Exchanges In order to expand the existing menu of exchange traded hedging tools available to the residents and non-residents, plain vanilla currency options contracts have been permitted to be traded in recognized stock exchanges or new exchanges, recognized by the Securities and Exchange Board of India (SEBI) in the country. Exchange traded Currency options are subject to following conditions: Permission (i) Currency option contracts8 are permitted in USD-INR spot rate, EUR-INR spot rate GBP-INR spot rate and JPY-INR spot rate. Cross currency option contracts (not involving the Indian Rupee) are permitted in EUR-USD spot rate, GBP-USD spot rate and the USD-JPY spot rate. (ii) ‘Persons resident in India’ may purchase or sell exchange traded currency options contracts subject to the terms and conditions laid down in paragraph 6 below. (iii) Foreign Portfolio Investors (FPIs) are permitted to enter into exchange traded currency options contracts subject to the terms and conditions laid down in Part A, Section II, paragraph no. 2. Features of exchange traded currency options Standardized exchange traded currency options shall have the following features:
Membership i) Members registered with the SEBI for trading in currency futures market shall be eligible to trade in the exchange traded currency options market of a recognised stock exchange. Membership for both trading and clearing, in the exchange traded currency options market shall be subject to the guidelines issued by the SEBI. ii) Banks authorized by the Reserve Bank under section 10 of the Foreign Exchange Management Act, 1999 as ‘AD Category - I bank’ are permitted to become trading and clearing members of the exchange traded currency options market of the recognized stock exchanges, on their own account and on behalf of their clients, subject to fulfilling the following minimum prudential requirements:
The AD Category - I banks, which fulfil the prudential requirements, should lay down detailed guidelines with the approval of their Boards for trading and clearing of the exchange traded currency options contracts and management of risks. iii) AD Category - I banks, which do not meet the above minimum prudential requirements and AD Category - I banks, which are Urban Co-operative banks or State Co-operative banks, can participate in the exchange traded currency options market only as clients, subject to approval therefor from the respective regulatory Departments of the Reserve Bank. Position limits i) The position limits for various classes of participants for the currency options shall be subject to the guidelines issued by the SEBI. ii) The AD Category - I banks shall operate within prudential limits, such as Net Open Position (NOP) and Aggregate Gap (AG) limits. Risk Management measures The trading of exchange traded currency options shall be subject to maintaining initial, extreme loss and calendar spread margins and the Clearing Corporations / Clearing Houses of the exchanges should ensure maintenance of such margins by the participants on the basis of the guidelines issued by the SEBI from time to time. Surveillance and disclosures The surveillance and disclosures of transactions, in the exchange traded currency options market, shall be carried out in accordance with the guidelines issued by the SEBI. Authorisation to the Exchanges / the Clearing Corporations for dealing in Currency Options Recognized stock exchanges and their respective Clearing Corporations / Clearing Houses shall not deal in or otherwise undertake the business relating to the exchange traded currency options unless they hold an authorisation issued by the Reserve Bank under section 10 (1) of the Foreign Exchange Management Act, 1999. 6. Terms and conditions for residents participating in the Exchange Traded Currency Derivatives (ETCD) a. Persons resident in India may take positions (long or short), without having to establish existence of underlying exposure, upto a single limit of USD 100 million equivalent across all currency pairs involving INR, put together, and combined across all exchanges. b. Residents shall be allowed to take positions in the cross-currency futures and exchange traded cross-currency option contracts without having to establish underlying exposure subject to the position limits as prescribed by the exchanges. c. Domestic participants who want to take a position in excess of limits mentioned at paragraph (a) above in the ETCD market will have to establish the existence of an underlying exposure. The procedure for the same shall be as under:
d. The onus of complying with the provisions of this circular rests with the participant in the ETCD market and in case of any contravention the participant shall be liable to any action that may be warranted as per the provisions of Foreign Exchange Management Act, 1999 and the regulations, directions, etc. issued thereunder. The position limits shall also be monitored by the exchanges, and breaches, if any, may be reported to the Financial Markets Regulation Department, Reserve Bank of India. 7. Commodity Hedging Refer Hedging of Commodity Price Risk and Freight Risk in Overseas Markets (Reserve Bank) Directions (RBI/2017-18/138 A.P. (DIR Series) Circular No. 19 dated March 12, 2018). 8. Freight hedging Refer Hedging of Commodity Price Risk and Freight Risk in Overseas Markets (Reserve Bank) Directions (RBI/2017-18/138 A.P. (DIR Series) Circular No. 19 dated March 12, 2018). SECTION II Facilities for Persons Resident outside India Participants Market-makers – AD Category I banks. Users – Foreign Portfolio Investors(FPIs), Investors having Foreign Direct Investments (FDI), Non Resident Indians (NRIs), Non Resident exporters and importers, Non Residents lenders having ECBs designated in INR. The purpose, products and operational guidelines of each of the users is detailed below: 1. Facilities for Foreign Portfolio Investors (FPIs) Purpose i) To hedge currency risk on the market value of entire investment in equity and/or debt in India as on a particular date. ii) To hedge the coupon receipts arising out of investments in debt securities falling due during the following twelve months. iii) To hedge Initial Public Offers (IPO) related transient capital flows under the Application Supported by Blocked Amount (ASBA) mechanism. Products Forward foreign exchange contracts with rupee as one of the currencies and foreign currency-INR options. Foreign Currency – INR swaps for IPO related flows. Operational Guidelines, Terms and Conditions a) FPIs may approach any AD Category I bank for hedging their currency risk on the market value of entire investment in equity and/or debt in India as on a particular date subject to the following conditions: i. The eligibility for cover may be determined on the basis of a valuation certificate provided by the designated AD category bank along with a declaration by the FPI to the effect that its global outstanding hedges plus the derivatives contracts cancelled across all AD category banks is within the market value of its investments. ii. The FPI should also provide a quarterly declaration to the custodian bank that the total amount of derivatives contract booked across AD Category banks are within the market value of its investments. iii. The hedges taken with AD banks other than designated AD banks have to be settled through the Special Non-Resident Rupee A/c maintained with the designated bank through RTGS/NEFT. iv. If an FPI wishes to enter into a hedge contract for the exposure relating to that part of the securities held by it against which it has issued any PN/ODI, it must have a mandate from the PN/ODI holder for the purpose. Further, while AD Category bank is expected to verify such mandates, in cases where this is rendered difficult, they may obtain a declaration from the FPI regarding the nature/structure of the PN/ODI establishing the need for a hedge operation and that such operations are being undertaken against specific mandates obtained from their clients. b) AD Category I banks may undertake periodic reviews, at least at quarterly intervals, on the basis of market price movements, fresh inflows, amounts repatriated and other relevant parameters to ensure that the forward cover outstanding is supported by underlying exposures. In this context, it is clarified that in case an FPI intends to hedge the exposure of one of its sub-account holders, (cf paragraph 4 of schedule 2 to Notification No. FEMA 20 /2000-RB dated 3rd May 2000) it will be required to produce a clear mandate from the sub-account holder in respect of the latter’s intention to enter into the derivative transaction. Further, the AD Category I banks shall have to verify the mandate as well as the eligibility of the contract vis-a-vis the market value of the securities held in the concerned sub-account. c) If a hedge becomes naked in part or in full owing to contraction of the market value of the portfolio, for reasons other than sale of securities, the hedge may be allowed to continue till the original maturity, if so desired. d) Forward contracts booked by FPIs, once cancelled, can be rebooked up to the extent of 10 per cent of the value of the contracts cancelled. The forward contracts booked may, however, be rolled over on or before maturity. e) Forward contracts booked for hedging coupon receipts as indicated in para. (1)(ii) above shall not be eligible for rebooking on cancellation. They may however be rolled over on maturity provided the relative coupon amount is yet to be received. f) The cost of hedge should be met out of repatriable funds and /or inward remittance through normal banking channel. g) All outward remittances incidental to the hedge are net of applicable taxes. h) For IPO related transient capital flows
i) FPIs and other foreign investor are free to remit funds through any bank of its choice for any transaction permitted under FEMA, 1999 or the Regulations / Directions framed thereunder. The funds thus remitted can be transferred to the designated AD Category -I custodian bank through the banking channel. Note should, however, be taken that KYC in respect of the remitter, wherever required, is a joint responsibility of the bank that has received the remittance as well as the bank that ultimately receives the proceeds of the remittance. While the first bank will be privy to the details of the remitter and the purpose of the remittance, the second bank, will have access to complete information from the recipient's perspective. Besides, the remittance receiving bank is required to issue FIRC to the bank receiving the proceeds to establish the fact the funds had been remitted in foreign currency. 2. Terms and conditions for Foreign Portfolio Investors participating in the Exchange Traded Currency Derivatives (ETCD) [Refer Part A, sub-paragraphs (4) & (5)] Foreign portfolio investors (FPIs) eligible to invest in securities as laid down in Schedules 2, 5, 7 and 8 of the Foreign Exchange Management (Transfer or Issue of Security by a person resident outside India) Regulations, 2000 (FEMA 20/2000-RB dated May 3, 2000 (GSR 406 (E) dated May 3, 2000)) as amended from time to time may enter into currency futures or exchange traded currency options contracts subject to the following terms and conditions: a. FPIs will be allowed access to the currency futures or exchange traded currency options for the purpose of hedging the currency risk arising out of the market value of their exposure to Indian debt and equity securities. b. Such investors can participate in the currency futures / exchange traded options market through any registered / recognised trading member of the exchange concerned. c. FPIs may take positions (long or short), without having to establish existence of underlying exposure, upto a single limit of USD 100 million equivalent across all currency pairs involving INR, put together, and combined across all exchanges. d. FPIs, are allowed to take positions in the cross-currency futures and exchange traded cross-currency option contracts without having to establish underlying exposure subject to the position limits as prescribed by the exchanges. e. An FPI cannot take a short position beyond USD 100 million equivalent across all currency pairs involving INR, put together, and combined across all exchanges. In order to take a long position in excess of these limits, it will be required to have an underlying exposure. The onus of ensuring the existence of an underlying exposure shall rest with the FPI concerned. f. The exchange will, however, be free to impose additional restrictions as prescribed by the Securities and Exchange Board of India (SEBI) for the purpose of risk management and fair trading. g. The exchange/ clearing corporation will provide FPI wise information on day-end open position as well as intra-day highest position to the respective custodian banks. The custodian banks will aggregate the position of each FPI on the exchanges as well as the OTC contracts booked with them (i.e. the custodian banks) and other AD banks. If the total value of the contracts exceeds the market value of the holdings on any day, the concerned FPI shall be liable to such penal action as may be laid down by the SEBI in this regard and action as may be taken by Reserve Bank of India under the Foreign Exchange Management Act (FEMA), 1999. The designated custodian bank will be required to monitor this and bring transgressions, if any, to the notice of RBI / SEBI. h. The onus of complying with the provisions of this circular rests with the participant in the ETCD market and in case of any contravention the participant shall be liable to any action that may be warranted as per the provisions of Foreign Exchange Management Act, 1999 and the regulations, directions, etc. issued thereunder. The position limits shall also be monitored by the exchanges, and breaches, if any, may be reported to the Financial Markets Regulation Department, Reserve Bank of India. 3. Facilities for Non-resident Indians (NRIs) Purpose
Products
4. Terms9 and conditions for Non-Resident Indians (NRIs) participating in the Exchange Traded Currency Derivatives (ETCD) i. NRIs shall designate an AD Cat-I bank for the purpose of monitoring and reporting their combined positions in the OTC and ETCD segments. ii. NRIs may take positions in the currency futures / exchange traded options market to hedge the currency risk on the market value of their permissible (under FEMA, 1999) Rupee investments in debt and equity and dividend due and balances held in NRE accounts. iii. The exchange/ clearing corporation will provide details of all transactions of the NRI to the designated bank. iv. The designated bank will consolidate the positions of the NRI on the exchanges as well as the OTC derivative contracts booked with them and with other AD banks. The designated bank shall monitor the aggregate positions and ensure the existence of underlying Rupee currency risk and bring transgressions, if any, to the notice of RBI / SEBI. v. The onus of ensuring the existence of the underlying exposure shall rest with the NRI concerned. If the magnitude of exposure through the hedge transactions exceeds the magnitude of underlying exposure, the concerned NRI shall be liable to such penal action as may be taken by Reserve Bank of India under the Foreign Exchange Management Act (FEMA), 1999. 5. Facilities for Hedging Foreign Direct Investment in India Purpose
Products Forward foreign exchange contracts with rupee as one of the currencies and foreign currency-INR options. Operational Guidelines, Terms and Conditions a) In respect of contracts to hedge exchange rate risk on the market value of investments made in India, contracts once cancelled are not eligible to be rebooked. The contracts may, however, be rolled over. b) In respect of proposed foreign direct investments, following conditions would apply:
6. Facilities for Hedging Trade Exposures, invoiced in Indian Rupees in India Purpose To hedge the currency risk arising out of genuine trade transactions involving exports from and imports to India, invoiced in Indian Rupees, with AD Category I banks in India. Products Forward foreign exchange contracts with rupee as one of the currencies, foreign currency-INR options. Operational Guidelines, Terms and Conditions The AD Category I banks can opt for either Model I or Model II as given below: Model I Non-resident exporter / importer or its central treasury (of the group and being a group entity)10 dealing through their overseas bank (including overseas branches of AD banks in India) i. Non-resident exporter / importer, or its central treasury approaches his banker overseas with appropriate documents with a request for hedging their Rupee exposure arising out of a confirmed import or export order invoiced in Rupees. ii. The overseas bank in turn approaches its correspondent in India (i.e. the AD bank in India) for a price to hedge the exposure of its customer along with documentation furnished by the customer that will enable the AD bank in India to satisfy itself that there is an underlying trade transaction (scanned copies would be acceptable). The following undertakings also need to be taken from the customer:
iii. A certification on the end client KYC may also be taken as a one-time document from the overseas bank by the AD bank in India. iv. The AD bank in India based on documents received from the overseas correspondent should satisfy itself about the existence of the underlying trade transaction and offer a forward price (no two-way quotes should be given) to the overseas bank who, in turn, will offer the same to its customer. The AD bank, therefore, will ‘not be’ dealing directly with the overseas importer / exporter. v. The amount and tenor of the hedge should not exceed that of the underlying transaction and should be in consonance with the extant regulations regarding tenor of payment / realization of the proceeds. vi. On due date, settlement is to be done through the correspondent bank’s Vostro or the AD bank’s Nostro accounts. vii. The contracts, once cancelled, cannot be rebooked. viii. The contracts may, however, be rolled over on or before maturity subject to maturity of the underlying exposure. ix. On cancellation of the contracts, gains may be passed on to the customer subject to the customer providing a declaration that he is not going to rebook the contract or that the contract has been cancelled on account of cancellation of the underlying exposure. x. In case the underlying trade transaction is extended, rollover can be permitted once based on the extension of the underlying trade transaction for which suitable documentation is to be provided by the overseas bank and the same procedure followed as in case of the original contract. Model II Non-resident exporter / importer or its central treasury (of the group and being a group entity)11 dealing directly with the AD bank in India i. The overseas exporter / importer or its central treasury approaches the AD bank in India with a request for forward cover in respect of underlying transaction for which he furnishes appropriate documentation (scanned copies would be acceptable), on a pre-deal basis to enable the AD bank in India to satisfy itself that there is an underlying trade transaction, and details of his overseas banker, address etc. The following undertakings also need to be taken from the customer
ii. The AD bank may obtain certification of KYC/AML in the format in Annex XVIII. The format can be obtained through the overseas correspondent / bank through SWIFT authenticated message. In case the AD bank has a presence outside India, the AD may take care of the KYC/AML through its bank’s offshore branch. iii. AD banks should evolve appropriate arrangements to mitigate credit risk. Credit limits can be granted based on the credit analysis done by self / the overseas branch. iv. The amount and tenor of the hedge should not exceed that of the underlying transaction and should be in consonance with the extant regulations regarding tenor of payment / realization of the proceeds. v. On due date, settlement is to be done through the correspondent bank’s Vostro or the AD bank’s Nostro accounts. AD banks in India may release funds to the beneficiaries only after sighting funds in Nostro / Vostro accounts. vi. The contracts, once cancelled, cannot be rebooked. vii. The contracts may, however, be rolled over on or before maturity subject to maturity of the underlying exposure. viii. On cancellation of the contracts, gains may be passed on to the customer subject to the customer providing a declaration that he is not going to rebook the contract or that the contract has been cancelled on account of cancellation of the underlying exposure. ix. In case the underlying trade transaction is extended, rollover can be permitted once based on the extension of the underlying trade transaction for which suitable documentation is to be provided by the overseas bank and the same procedure followed as in case of the original contract. x. AD banks shall report hedge contracts booked under this facility to CCIL’s trade repository with a special identification tag12. 7. Facilities for Hedging of ECBs, designated in Indian Rupees, in India I) Purpose: To hedge the currency risk arising out of ECBs designated in INR either directly with AD Category- I banks in India or through their overseas banks on a back to back basis as per operational guidelines, terms and conditions given under (II) below Products Forward foreign exchange contracts with rupee as one of the currencies, foreign currency-INR options and foreign currency-INR swaps. Operational Guidelines, Terms and Conditions i. The foreign equity holder / overseas organisation or individual approaches the AD bank in India with a request for forward cover in respect of underlying transaction for which he needs to furnish appropriate documentation (scanned copies would be acceptable), on a pre-deal basis to enable the AD bank in India to satisfy itself that there is an underlying ECB transaction, and details of his overseas banker, address, etc. The following undertakings also need to be taken from the customer –
ii. The amount and tenor of the hedge should not exceed that of the underlying transaction and should be in consonance with the extant regulations regarding tenor of payment / realization of the proceeds. iii. On due date, settlement is to be done through the correspondent bank’s Vostro or the AD bank’s Nostro accounts. AD banks in India may release funds to the beneficiaries only after sighting funds in Nostro / Vostro accounts. iv. The contracts, once cancelled, cannot be rebooked. v. The contracts may, however, be rolled over on or before maturity subject to maturity of the underlying exposure. vi. On cancellation of the contracts, gains may be passed on to the customer subject to the customer providing a declaration that he is not going to rebook the contract or that the contract has been cancelled on account of cancellation of the underlying exposure. II) Purpose: To hedge the currency risk arising out of ECBs designated in INR extended by recognised non-resident lenders13 with AD Category- I banks in India through their overseas banks on a back to back basis. Products: Foreign currency-INR swaps Operational Guidelines, Terms and Conditions (i) The recognised non-resident lender approaches his overseas bank with appropriate documentation as evidence of an underlying ECB denominated in INR with a request for a swap rate for mobilising INR for onward lending to the Indian borrower. (ii) The overseas bank, in turn, approaches an AD Cat-I bank for a swap rate along with documentation furnished by the customer that will enable the AD bank in India to satisfy itself that there is an underlying ECB in INR (scanned copies would be acceptable). The following undertakings also need to be taken from the customer –
(iii) A KYC certification on the end client shall also be taken by the AD bank in India as a one-time document from the overseas bank. (iv) Based on the documents received from the overseas bank, the AD bank in India should satisfy itself about the existence of the underlying ECB in INR and offer an indicative swap rate to the overseas bank which, in turn, will offer the same to the non-resident lender on a back-to-back basis. (v) The continuation of the swap shall be subject to the existence of the underlying ECB at all times. (vi) On the due date, settlement may be done through the Vostro account of the overseas bank maintained with its correspondent bank in India. (vii) The concerned AD Cat-I bank shall keep on record all related documentation for verification by Reserve Bank. 8. Facility for hedging exposures of Indian subsidiaries14 Users Non-resident parent of an Indian subsidiary or its centralised treasury or its regional treasury outside India. Products All FCY-INR derivatives, OTC as well exchange traded that the Indian subsidiary is eligible to undertake as per FEMA, 1999 and Regulations and Directions issued thereunder. Operational Guidelines, Terms and Conditions
9. Simplified Hedging Facility Users: Resident and non-resident entities, other than individuals. Purpose: To hedge exchange rate risk on transactions, contracted or anticipated, permissible under Foreign Exchange Management Act (FEMA), 199915. Products: Any Over the Counter (OTC) derivative or Exchange Traded Currency Derivative (ETCD) permitted under FEMA, 1999. Cap on Outstanding Contracts: USD 30 million, or its equivalent, on a gross basis. Designated Bank: Any Authorised Dealer Category-I (AD Cat-I) bank designated as such by the user. Operational Guidelines, Terms and Conditions
10. Operational Guidelines, Terms and Conditions applicable to all non-residents (except non-residents hedging exposures of Indian subsidiaries at para. 8 above and those hedging under Simplified Hedging Facility) The operational guidelines as outlined for FPIs would be applicable, with the exception of the provision relating to rebooking of cancelled contracts. All foreign exchange derivative contracts permissible for a resident outside India other than a FPI, once cancelled, are not eligible to be rebooked. SECTION III Facilities for Authorised Dealers Category-I 1. Management of Banks’ Assets-Liabilities Users – AD Category I banks Purpose - Hedging of interest rate and currency risks of foreign exchange asset-liability portfolio Products - Interest Rate Swap, Interest Rate Cap/Collar, Currency Swap, Forward Rate Agreement. AD banks may also purchase call or put options to hedge their cross currency proprietary trading positions. Operational Guidelines, Terms and Conditions The use of these instruments is subject to the following conditions:
2. Hedging of Gold Prices Users –
Purpose – To hedge price risk of gold Products - Exchange-traded and over-the-counter hedging products available overseas. Operational Guidelines, Terms and Conditions
3. Hedging of Capital Users – Foreign banks operating in India Product – Forward foreign exchange contracts Operational Guidelines, Terms and Conditions a) Tier I capital -
b) Tier II capital -
4. Participation in the currency futures market in India Please refer to Part-A Section I, paragraph 4. In continuation of the same:
i) Minimum net worth of Rs. 500 crores. ii) Minimum CRAR of 10 per cent. iii) Net NPA should not exceed 3 per cent. iv) Net profit for last 3 years. The AD Category - I banks which fulfill the prudential requirements should lay down detailed guidelines with the approval of their Boards for trading and clearing of currency futures contracts and management of risks. (c). AD Category - I banks which do not meet the above minimum prudential requirements and AD Category - I banks which are Urban Co-operative banks or State Co-operative banks can participate in the currency futures market only as clients, subject to approval and directions from the respective regulatory Departments of the Reserve Bank. (d) The AD Category - I banks, shall operate within prudential limits, such as Net Open Position (NOP) and Aggregate Gap (AG) limits. The exposure of the banks, on their own account, in the currency futures market shall form part of their NOP and AG limits. 5. Participation in the exchange traded currency options market in India Please refer to Part-A Section I, paragraph 5. In continuation of the same: a) AD Category - I banks are permitted to become trading and clearing members of the exchange traded currency options market of the recognized stock exchanges, on their own account and on behalf of their clients, subject to fulfilling the following minimum prudential requirements:
The AD Category - I banks, which fulfil the prudential requirements, should lay down detailed guidelines with the approval of their Boards for trading and clearing of the exchange traded currency options contracts and management of risks. b) AD Category - I banks, which do not meet the above minimum prudential requirements and AD Category - I banks, which are Urban Co-operative banks or State Co-operative banks, can participate in the exchange traded currency options market only as clients, subject to approval therefor from the respective regulatory Departments of the Reserve Bank. c) The AD Category - I banks shall operate within prudential limits, such as Net Open Position (NOP) and Aggregate Gap (AG) limits. The option position of the banks, on their own account, in the exchange traded currency options shall form part of their NOP and AG limits. 6. Operational Guidelines, terms and conditions for AD Category-I banks participation in the ETCD market (a) AD Category-I banks may undertake trading in all permitted exchange traded currency derivatives within their Net Open Position Limit (NOPL) subject to limits stipulated by the exchanges (for the purpose of risk management and preserving market integrity) provided that any synthetic USD-INR position created using a combination of exchange traded FCY- INR and cross-currency contracts shall have to be within the position limit prescribed by the exchange for the USD-INR contract. (b) AD Category-I banks may net / offset their positions in the ETCD market against the positions in the OTC derivatives markets. Keeping in view the volatility in the foreign exchange market, Reserve Bank may however stipulate a separate sub-limit of the NOPL (as a percentage thereof) exclusively for the OTC market as and when required. PART B ACCOUNTS OF NON-RESIDENT BANKS 1. General (i) Credit to the account of a non-resident bank is a permitted method of payment to non-residents and is, therefore, subject to the regulations applicable to transfers in foreign currency. (ii) Debit to the account of a non-resident bank is in effect an inward remittance in foreign currency. 2. Rupee Accounts of Non-Resident Banks AD Category I banks may open/close Rupee accounts (non-interest bearing) in the names of their overseas branches or correspondents without prior reference to the Reserve Bank. Opening of Rupee accounts in the names of branches of Pakistani banks operating outside Pakistan requires specific approval of the Reserve Bank. 3. Funding of Accounts of Non-resident Banks (i) AD Category I banks may freely purchase foreign currency from their overseas correspondents/branches at on-going market rates to lay down funds in their accounts for meeting their bonafide needs in India. (ii) Transactions in the accounts should be closely monitored to ensure that overseas banks do not take a speculative view on the Rupee. Any such instances should be notified to the Reserve Bank. NOTE: Forward purchase or sale of foreign currencies against Rupees for funding is prohibited. Offer of two-way quotes in Rupees to non-resident banks is also prohibited. 4. Transfers from other Accounts Transfer of funds between the accounts of the same bank or different banks is freely permitted. 5. Conversion of Rupees into Foreign Currencies Balances held in Rupee accounts of non-resident banks may be freely converted into foreign currency. All such transactions should be recorded in Form A2 and the corresponding debit to the account should be in form A3 under the relevant Returns. 6. Responsibilities of Paying and Receiving Banks In the case of credit to accounts the paying banker should ensure that all regulatory requirements are met and are correctly furnished in form A1/A2 as the case may be. 7. Refund of Rupee Remittances Requests for cancellation or refund of inward remittances may be complied with without reference to Reserve Bank after satisfying themselves that the refunds are not being made in cover of transactions of compensatory nature. 8. Overdrafts / Loans to Overseas Branches/ Correspondents (i) AD Category I banks may permit their overseas branches/ correspondents temporary overdrawals not exceeding Rs.500 lakhs in aggregate, for meeting normal business requirements. This limit applies to the amount outstanding against all overseas branches and correspondents in the books of all the branches of the authorised AD Category I bank in India. This facility should not be used to postpone funding of accounts. If overdrafts in excess of the above limit are not adjusted within five days a report should be submitted to the Chief General Manager, Financial Markets Regulation Department, Reserve Bank of India, Central Office, 1st Floor, Main Building, Shahid Bhagat Singh Road, Fort, Mumbai – 400 001 within 15 days from the close of the month, stating the reasons thereof. Such a report is not necessary if arrangements exist for value dating. (ii) AD Category I bank wishing to extend any other credit facility in excess of (i) above to overseas banks should seek prior approval from the Chief General Manager, Financial Markets Regulation Department, Reserve Bank of India, Central Office. 9. Rupee Accounts of Exchange Houses Opening of Rupee accounts in the names of Exchange Houses for facilitating private remittances into India requires approval of the Reserve Bank. Remittances through Exchange Houses for financing trade transactions are permitted upto Rs.15,00,000 per transaction17. PART C INTER-BANK FOREIGN EXCHANGE DEALINGS 1. General The Board of Directors of AD Category I banks should frame an appropriate policy and fix suitable limits for various Treasury functions. 2. Position and Gaps The net overnight open exchange position (Annex-I) and the aggregate gap limits should be communicated to the Reserve Bank soon after the approval of the Board / Management Committee. 3. Inter-bank Transactions Subject to compliance with the provisions of paragraphs 1 and 2, AD Category I banks may freely undertake foreign exchange transactions as under: a) With AD Category I banks in India: (i) Buying/Selling/Swapping foreign currency against Rupees or another foreign currency. (ii) Placing/Accepting deposits and Borrowing/Lending in foreign currency. b). With banks overseas and Off-shore Banking Units in Special Economic Zones (i) Buying/Selling/Swapping foreign currency against another foreign currency to cover client transactions or for adjustment of own position, (ii) Initiating trading positions in the overseas markets. NOTE : A. Funding of accounts of Non-resident banks - please refer to paragraph 3 of Part B. B. Form A2 need not be completed for sales in the inter-bank market, but all such transactions shall be reported to Reserve Bank in R Returns. 4. Foreign Currency Accounts/ Investments in Overseas Markets (i) Inflows into foreign currency accounts arise primarily from client-related transactions, swap deals, deposits, borrowings, etc. AD Category I banks may maintain balances in foreign currencies up to the levels approved by the Board. They are free to manage the surplus in these accounts through overnight placement and investments with their overseas branches/correspondents subject to adherence to the gap limits approved by the Reserve Bank. (ii) AD Category I banks are free to undertake investments in overseas markets up to the limits approved by their Board. Such investments may be made in overseas money market instruments and/or debt instruments issued by a foreign state with a residual maturity of less than one year and rated at least as AA (-) by Standard & Poor / FITCH IBCA or Aa3 by Moody's. For the purpose of investments in debt instruments other than the money market instruments of any foreign state, bank's Board may lay down country ratings and country - wise limits separately wherever necessary. NOTE: For the purpose of this clause, 'money market instrument' would include any debt instrument whose life to maturity does not exceed one year as on the date of purchase. (iii) AD Category I banks may also invest the un-deployed FCNR (B) funds in overseas markets in long-term fixed income securities subject to the condition that the maturity of the securities invested in do not exceed the maturity of the underlying FCNR (B) deposits. (iv) Foreign currency funds representing surpluses in the nostro accounts may be utilised for: a) making loans to resident constituents for meeting their foreign exchange requirements or for the Rupee working capital/capital expenditure needs of exporters/ corporates who have a natural hedge or a risk management policy for managing the exchange risk subject to the prudential/interest-rate norms, credit discipline and credit monitoring guidelines in force. b) extending credit facilities to Indian wholly owned subsidiaries/ joint ventures abroad in which at least 51 per cent equity is held by a resident company, subject to the guidelines issued by Reserve Bank (Department of Banking Regulation). (v) AD Category I banks may write-off/transfer to unclaimed balances account, un-reconciled debit/credit entries as per instructions issued by Department of Banking Regulation, from time to time. 5. Loans/Overdrafts a) All categories of overseas foreign currency borrowings of AD Category I banks, (except for borrowings at (c) below), including existing External Commercial Borrowings and loans/overdrafts from their Head Office, overseas branches and correspondents outside India, International / Multilateral Financial Institutions [see (e) below] or any other entity as permitted by Reserve Bank of India and overdrafts in nostro accounts (not adjusted within five days), shall not exceed 100 per cent of their unimpaired Tier I capital or USD 10 million (or its equivalent), whichever is higher subject to conditions laid down in (f) below. The aforesaid limit applies to the aggregate amount availed of by all the offices and branches in India from all their branches/correspondents abroad and also includes overseas borrowings in gold for funding domestic gold loans (cf. DBOD circular No.IBD.BC.33/23.67.001/2005-06 dated September 5, 2005). If drawals in excess of the above limit are not adjusted within five days, a report, as per the format in Annex-VIII, should be submitted to the Chief General Manager, Financial Markets Regulation Department, Reserve Bank of India Central Office, 1st Floor, Main Building, Shahid Bhagat Singh Road, Fort, Mumbai – 400 001, within 15 days from the close of the month in which the limit was exceeded. Such a report is not necessary if arrangements exist for value dating. b) The funds so raised may be used for purposes other than lending in foreign currency to constituents in India and repaid without reference to the Reserve Bank. As an exception to this rule, AD Category I banks are permitted to use borrowed funds as also foreign currency funds received through swaps for granting foreign currency loans for export credit in terms of IECD Circular No 12/04.02.02/2002-03 dated January 31, 2003. Any fresh borrowing above this limit shall be made only with the prior approval of the Reserve Bank. Applications for fresh ECBs should be made as per the current ECB Policy. c) The following borrowings would continue to be outside the limit of 100 per cent of unimpaired Tier I capital or USD 10 million (or its equivalent), whichever is higher: i).Overseas borrowings by AD Category I banks for the purpose of financing export credit subject to the conditions prescribed in DBOD Master Circular dated July 2, 2015 on Rupee / Foreign Currency Export Credit & Customer Service To Exporters. ii).Subordinated debt placed by head offices of foreign banks with their branches in India as Tier II capital. iii) Capital funds raised/augmented by the issue of Innovative Perpetual Debt Instruments and Debt Capital Instruments, in foreign currency, in terms of Circulars DBOD. No. BP.BC.57/21.01.002/2005-06 dated January 25, 2006, DBOD. No. BP.BC.23/21.01.002/2006-07 dated July 21, 2006 and Perpetual Debt Instruments and Debt Capital Instruments in foreign currency issued in terms of circular DBOD.No.BP.BC.98/21.06.201/2011-12 dated May 2, 2012. iv) Any other overseas borrowing with the specific approval of the Reserve Bank. d) Interest on loans/overdrafts may be remitted (net of taxes) without the prior approval of Reserve Bank. e) 18AD category-I banks may borrow only from International / Multilateral Financial Institutions in which Government of India is a shareholding member or which have been established by more than one government or have shareholding by more than one government and other international organizations. f) The borrowings beyond 50 per cent of unimpaired Tier I capital of AD Category – I banks will be subject to the following conditions: (i) The bank should have a Board approved policy on overseas borrowings which shall contain the risk management practices that the bank would adhere to while borrowing abroad in foreign currency. (ii) The bank should maintain a CRAR of 12.0 per cent. (iii) The borrowings beyond the existing ceiling shall be with a minimum maturity of three years. (iv) All other existing norms (FEMA regulations, NOPL norms, etc) shall continue to be applicable. PART-D Writing of Covered Call and Put Currency Option contracts by Indian exporters and importers of goods and services19 Participants a. Market-makers: AD Category-I banks in India who have Reserve Bank’s approval to run cross-currency and foreign currency-Indian Rupee options books. b. Users: Listed companies and their subsidiaries/joint ventures/associates having common treasury and consolidated balance sheet or unlisted companies with a minimum net worth of Rs. 200 crore provided appropriate disclosures are made in the financial statements as prescribed by the Institute of Chartered Accountants of India (ICAI). 2. Product a. Covered Call: A resident exporter may write (sell) a standalone plain vanilla European call option contract to an AD Category-I bank in India against the cover of contracted exposure arising out of exports of goods and services from India. b. Covered Put: A resident importer may write (sell) a standalone plain vanilla European put option contract to an AD Category-I bank in India against the cover of contracted exposure arising out of imports of goods and services into India. c. The use of Covered option shall not be considered as a hedging strategy. d. Being a combination of an underlying cash instrument and a generic derivative product, covered call and covered put options shall be treated as structured derivative products in terms of the Comprehensive Guidelines on Derivatives issued vide Circular DBOD.No.BP.BC. 86/21.04.157/2006-07 dated April 20, 2007, as amended from time to time. Operational guidelines, terms and conditions a. All the guidelines governing derivative products in general and structured products in particular of the circular mentioned in para. (2)(d) above and subsequent amendments thereof will apply, mutatis mutandis, to covered options. b. AD Category-I banks may enter into covered options with their exporter or importer constituents only after obtaining specific approval in this regard from their competent authority (Board / Risk Committee / ALCO) as per the guidelines on running Cross Currency and Foreign Currency – INR options book mentioned in Part-A, Section I of this Master Direction. c. The responsibility of assessing the strength of risk management systems, financial soundness of the option writer shall rest with the concerned AD Cat-I bank. AD Category I banks may stipulate safeguards, such as, continuous profitability, higher net worth, turnover, etc. depending on the scale of forex operations and risk profile of the option writers. d. Covered options may be written against either a portion or the full value of the underlying. e. AD Cat-I banks shall treat the exposures against which a covered option has been written as an “unhedged exposure”. Accordingly, the guidelines issued vide Reserve Bank Circular DBOD.No.BP.BC. 85/21.06.200/2013-14 dated January 15, 2014 on Capital and Provisioning Requirements for Exposures to entities with Unhedged Foreign Currency Exposure shall apply. f. Covered option contracts may be written for a period up to the maturity of the underlying subject to a maximum maturity period of 12 month. g. Covered options may be freely cancelled and rebooked subject to the verification of the underlying by the AD Cat-I bank concerned. h. For eligible underlying contracted exposures, the option seller may write the covered option either as a single FCY-INR option or as separate options for the FCYUSD and USD-INR legs. i. The operational guidelines and terms and conditions as laid down under “Contracted Exposures” – Forward Foreign Exchange Contracts, Cross Currency Options (not involving Rupee) and Foreign Currency-INR Options in Part – A, Section I (A) of this Master Direction shall be applicable to covered options to the extent relevant. j. Except as mentioned in these guidelines, covered options shall not be undertaken in combination with any other derivative or cash instrument. k. As provided under Comprehensive Guidelines on Derivatives, as amended from time to time, authorised dealers may maintain cash margin / liquid collateral in respect of covered options sold to them by exporters and importers, if necessary. l. AD Cat-I banks entering into covered options with their constituents may report the same to CCIL’s reporting platform for OTC foreign exchange derivatives in terms of our circular FMD.MSRG.No.75/02.05.002/2012-13 dated March 13, 2013, as amended from time to time. 4. In addition to the above, “General Instructions for OTC forex derivative contracts entered by Residents in India,” as laid down under Section (I)(B) in Part-A of this Master Direction shall be applicable, mutatis mutandis, to covered options. PART E i) The Head/Principal Office of each AD Category-I banks should submit daily statements of Foreign Exchange Turnover in Form FTD and Gaps, Position and Cash Balances in Form GPB through the Online Returns Filing System (ORFS) as per the format given in Annex-II. ii) [Removed]20 iii) AD Category-I banks should consolidate the data on cross currency derivative transactions undertaken by residents and submit half-yearly reports (June and December) as per the format given in Annex-IV. The report may also be forwarded by e-mail so as to reach the Department by the 10th of the following month. iv) AD Category-I banks should forward details of exposures in foreign exchange as at the end of every quarter as per the format given in Annex-V. ADs should submit this report as per the revised format online only from quarter ended September 2013 through the Extensible Business Reporting Language (XBRL) system which may be accessed at https://secweb.rbi.org.in/orfsxbrl/. AD Category – I banks which require login ID / passwords for accessing XBRL system may submit their e-mail addresses and contact numbers to e-mail. Please note that details of exposures of all corporate clients who meet the prescribed criteria have to be included in the report. The AD banks should submit this report based on bank's books and not based on corporate returns. v) Authorised Dealers Category I should forward details of option transactions (FCY-INR) undertaken on a weekly basis as per the format given in Annex VIII. The report may also be forwarded by e-mail so as to reach the Department by the 10th of the following month. vi) AD Category-I banks have to report their total outstanding foreign currency borrowings under all categories as on the last Friday of every month as per the format given in Annex-IX. The report should be received by the 10th of the following month. The report may also be forwarded by e-mail so as to reach the Department by the 10th of the following month. vii) AD Category-I banks are required to submit a monthly report (as on the last Friday of every month) on the limits granted and utilized by their constituents under the facility of booking forward contracts on past performance basis, as per the format given in Annex-X. The report may also be forwarded by e-mail so as to reach the Department by the 10th of the following month. viii) The Head/Principal Office of each AD Category-I banks should submit a statement in form BAL giving details of their holdings of all foreign currencies on fortnightly basis through the web portal at https://bop.rbi.org.in as per the format given in Annex III21 within seven calendar days from the close of the reporting period to which it relates. ix) A monthly statement should be furnished before the 10th of the succeeding month, in respect of cover taken by FPI, indicating the name of the FPI / fund, the eligible amount of cover, the actual cover taken, etc. as per the format in Annex XIII. The report may also be forwarded by e-mail so as to reach the Department by the 10th of the following month. x) The Head/Principal Office of each AD Category-I banks should furnish an up-to-date list (in triplicate) of all its offices/branches, which are maintaining Rupee accounts of non-resident banks as at the end of December every year giving their code numbers allotted by Reserve Bank. The list should be submitted before 15th January of the following year. The offices/branches should be classified according to area of jurisdiction of Reserve Bank Offices within which they are situated. The report may also be forwarded by e-mail so as to reach the Department by the 10th of the following month. xi) AD Category – I banks are required to submit a quarterly report on the forward contracts booked & cancelled by SMEs and Resident Individuals, Firms and Companies within the first week of the following month, as per format given in Annex XIV. The report may also be forwarded by e-mail so as to reach the Department by the 10th of the following month. xii) Authorised Dealers should consolidate the data on the transactions undertaken by non-residents under the scheme and submit quarterly reports as per the format indicated in the Annex XIX. The report may also be forwarded by e-mail so as to reach the Department by the 10th of the following month. xiii) Authorised Dealers should report on a quarterly basis, doubtful transactions involving frequent cancellation of hedge transactions and / or the underlying trade transactions by non-residents under the scheme as per the format indicated in the Annex XX. The report may also be forwarded by e-mail so as to reach the Department by the 10th of the following month. Reports are to be sent to The Chief General Manager, Financial Markets Regulation Department Reserve Bank of India, Central Office, 1st Floor, Main Building, Shahid Bhagat Singh Road, Fort, Mumbai - 400 001 unless otherwise specified. Reports may be sent preferably through e-mail. [See Part C, Paragraph 2] A. Guidelines for Foreign Exchange Exposure Limits of Authorised Dealers Category – I The Foreign Exchange Exposure Limits of Authorised Dealers would be dual in nature.
For banks incorporated in India, the exposure limits fixed by the Board should be the aggregate for all branches including their overseas branches and Off-shore Banking Units. For foreign banks, the limits will cover only their branches in India. i. Net Overnight Open Position Limit (NOOPL) for calculation of capital charge on forex risk NOOPL may be fixed by the boards of the respective banks and communicated to the Reserve Bank immediately. However, such limits should not exceed 25 percent of the total capital (Tier I and Tier II capital) of the bank. The Net Open position may be calculated as per the method given below: 1. Calculation of the Net Open Position in a Single Currency The open position must first be measured separately for each foreign currency. The open position in a currency is the sum of (a) the net spot position, (b) the net forward position and (c) the net options position. a) Net Spot Position The net spot position is the difference between foreign currency assets and the liabilities in the balance sheet. This should include all accrued income/expenses. b) Net Forward Position This represents the net of all amounts to be received less all amounts to be paid in the future as a result of foreign exchange transactions which have been concluded. These transactions, which are recorded as off-balance sheet items in the bank's books, would include:
c) Net Options Position The options position is the "delta-equivalent" spot currency position as reflected in the authorized dealer's options risk management system, and includes any delta hedges in place which have not already been included under 1(a) or 1(b) (i) and (ii) above. 2. Calculation of the Overall Net Open Position This involves measurement of risks inherent in a bank's mix of long and short position in different currencies. It has been decided to adopt the "shorthand method" which is accepted internationally for arriving at the overall net open position. Banks may, therefore, calculate the overall net open position as follows: i. Calculate the net open position in each currency (paragraph 1 above). ii. Calculate the net open position in gold. iii. Convert the net position in various currencies and gold into Rupees in terms of existing RBI / FEDAI Guidelines. All derivative transactions including forward exchange contracts should be reported on the basis of Present Value (PV) adjustment. iv. Arrive at the sum of all the net short positions. v. Arrive at the sum of all the net long positions. Overall net foreign exchange position is the higher of (iv) or (v). The overall net foreign exchange position arrived at as above must be kept within the limit approved by the bank’s Board. Note: Authorised Dealer banks should report all derivative transactions including forward exchange contracts on the basis of PV adjustment for the purpose of calculation of the net open position. Authorised Dealer banks may select their own yield curve for the purpose of PV adjustments. The banks however should have an internal policy approved by its ALCO regarding the yield curve/(s) to be used and apply it on a consistent basis. 3. Offshore exposures For banks with overseas presence, the offshore exposures should be calculated on a standalone basis as per the above method and should not be netted with onshore exposures. The aggregate limit (on-shore + off-shore) may be termed Net Overnight open Position (NOOP) and will be subjected to capital charge. Accumulated surplus of foreign branches need not be reckoned for calculation of open position. An illustrative example is as follows: If a bank has, let us say three foreign branches and the three branches have open position as below- Branch A: + Rs 15 crores Branch B: + Rs 5 crores Branch C: - Rs 12 crores The open position for the overseas branches taken together would be Rs 20 crores. 4. Capital22 Requirement As prescribed by the Reserve Bank from time to time 5. Other Guidelines i. ALCO / Internal Audit Committee of the Authorized Dealers should monitor the utilization of and adherence to the limits. ii. Authorized Dealers should also have a system in place to demonstrate, whenever required, the various components of the NOOP as prescribed in the guidelines for verification by Reserve Bank. iii. Transactions undertaken by Authorized Dealers till the end of business day may be computed for calculation of Foreign Exchange Exposure Limits. The transactions undertaken after the end of business day may be taken into the positions for the next day. The end of day time may be approved by the bank’s Board. ii. Limit for positions involving Rupee as one of the currencies (NOP-INR) for exchange rate management
B. Aggregate Gap Limits (AGL) i. AGL may be fixed by the boards of the respective banks and communicated to the Reserve Bank immediately. However, such limits should not exceed 6 times the total capital (Tier I and Tier II capital) of the bank. ii. However, Authorised Dealers which have instituted superior measures such as tenor wise PV01 limits and VaR to aggregate foreign exchange gap risks are allowed to fix their own PV01 and VaR limits based on their capital, risk bearing capacity etc. in place of AGL and communicate the same to the Reserve Bank. The procedure and calculation of the limit should be clearly documented as an internal policy and strictly adhered to. [see Part E, paragraph (i)] Reporting of Forex Turnover Data - FTD and GPB The guidelines and formats for preparation of the FTD and GPB reports are given below. AD Category-I banks may ensure that the reports are properly compiled on the basis of these guidelines: The data for a particular date has to reach us by the close of business of the following working day. FTD 1. SPOT - Cash and tom transactions are to be included under ‘Spot’ transactions. 2. SWAP - Only foreign exchange swaps between authorised dealers category-I should be reported under swap transactions. Long term swaps (both cross currency and foreign currency-Rupee swaps) should not be included in this report. Swap transactions should be reported only once and should not be included under either the ‘spot’ or ‘forward’ transactions. Buy/Sell swaps should be included in the ‘Purchase’ side under ‘Swaps’ while Sell/buy swaps should figure on the ‘Sale’ side. 3. Cancellation of forwards - The amount required to be reported under cancellation of forward contracts against purchases from merchants should be the aggregate of cancelled forward merchant sale contracts by authorised dealers category-I (adding to the supply in the market). On the sale side of cancelled forward contracts, aggregate of the cancelled forward purchase contracts should be indicated (adding to the demand in the market). 4 ‘FCY/FCY’ transactions - Both the legs of the transactions should be reported in the respective columns. For example in a EUR/USD purchase contract, the EUR amount should be included in the purchase side while the USD amount should be included in the sale side. 5. Transactions with RBI should be included in inter-bank transactions. Transactions with financial institutions other than banks authorised to deal in foreign exchange should be included under merchant transactions. GPB 1. Foreign Currency Balances - Cash balances and investments in all foreign currencies should be converted into US dollars and reported under this head. 2. Net open exchange position- This should indicate the overall overnight net open exchange position of the authorised dealer category-I in Rs. Crore. The net overnight open position should be calculated on the basis of the instructions given in Annex I. 3. Of the above FCY/INR- The amount to be reported is the position against the Rupee- i.e. the net overnight open exchange position less cross currency position, if any. Formats of FTD and GPB Statements FTD Statement showing daily turnover of foreign exchange dated………
GPB Statement showing gaps, position and cash balances as on………..
FOREIGN CURRENCY MATURITY MISMATCH (IN USD MILLION)
[see Part E, paragraph (iii)] Cross- currency derivative transactions statement
[see Part E , paragraph (iv)] Information relating to exposures in foreign currency as on ___________
Note: AD Category – I banks should submit the above quarterly report as per the revised format online only from quarter ended September 2013 through the Extensible Business Reporting Language (XBRL) system which may be accessed at https://secweb.rbi.org.in/orfsxbrl/. [See Part A Section 1 paragraph 2(g)(ii)] Format of Declaration of amounts booked/cancelled under Past Performance facility [On letterhead of the Company] Date : To, (Name and address of the Bank) Dear Sir, Sub : Declaration of amounts booked/cancelled under Past Performance facility We refer to the facility of booking of Forward or Option Contracts involving Foreign Exchange, based on the past performance facility with Authorised Dealer Category I Banks (AD Category I Banks), more specifically in relation to the undertaking submitted by us to you, dated [ ] in this regard ("Undertaking"). In accordance with the said Undertaking, we hereby furnish a declaration regarding the amounts of the transactions booked by us with all AD Category I banks. We are availing the past performance limit with the following AD Category I banks : …………………………………. Please find below the information regarding amounts booked / cancelled with all AD Category I Banks under the said past performance facility as permitted under the FEMA Regulations :
Thanking you, Yours faithfully, For XXXXXX (Chief Financial Officer) [See Part A, Section I, paragraph 2(g)(iv)] Format for Declaration for utilization of past performance limits in excess of 50 per cent and details of import / export turnover, overdues, etc. [On letterhead of the Company] To, Dear Sir, Sub: Declaration for utilisation of past performance limits in excess of 50 per cent and details of import / export turnover, overdues, etc.
Yours faithfully, For XXXXXX (Chief Financial Officer) [see Part E , paragraph (v)] FCY/Rupee Option transactions For the week ended__________________ A. Option Transaction Report
II. Option Positions Report
Total Net Open Options Position (INR): The total net open options position can be arrived using the methodology prescribed in A. P. (DIR Series) Circular No. 92 dated April 4, 2003. III. Change in Portfolio Delta Report Change in USD-INR delta for a 0.25% change in spot ($-appreciation) in INR terms = Change in USD-INR delta for a 0.25% change in spot ($-depreciation) in INR terms = Similarly, Change in delta for a 0.25% change in spot (FCY appreciation & depreciation separately) in INR terms for other currency pairs, such as EUR-INR, JPY-INR etc. IV. Strike Concentration Report
This report should be prepared for a range of 150 paise around current spot level. Cumulative positions to be given. All amounts in USD million. When the bank owns an option, the amount should be shown as positive. When the bank has sold an option, the amount should be shown as negative. All reports may be sent via e-mail by market-makers. Reports may be prepared as of every Friday and sent by the following Monday. [See Part C, paragraph 5 (a)] Overseas foreign currency borrowings –Report as on ……….. Amount (in equivalent USD* Million)
[Removed]23 [Removed]24 [see Part A ,Section II, paragraph 1] Statement – Details of Forward cover undertaken by FPI clients Month – Part A – Details of forward cover (without rebooking) outstanding Name of FPI Current Market Value (USD mio)
Part B – Details of transactions permitted to be cancelled and rebooked Name of FPI Market Value as determined at start of year (USD mio)
Name of the AD Category – I bank: Signature of the Authorised official: Date : Stamp : [A. P. (DIR Series) Circular No. 15, dated October 29, 2007 & A.P. (DIR Series) Circular No. 20 , dated October 8, 2015] [see Part A, Section I, para 3(ii)(c)] Application cum Declaration for booking of forward contracts / options up to USD 1,000,000 by Resident Individuals, Firms and Companies (To be completed by the applicant) I. Details of the applicant a. Name ………………………….. b. Address………………………… c. Account No…………………….. d. PAN No…………………………. II. Details of the foreign exchange forward / FCY-INR options contracts required 1. Amount (Specify currency pair) ……………………………… 2. Tenor …………………………………………………. III. Notional value of forward / FCY-INR contracts outstanding as on date ………. IV. Details of actual / anticipated remittances 1. Amount: 2. Remittance Schedule: 3. Purpose: Declaration I, ………………. …………(Name of the applicant), hereby declare that the total amount of foreign exchange forward / FCY-INR options contracts booked with the ---------------(designated branch) of ------------------(bank) in India is within the limit of USD 1,000,000/- (US Dollar One Million only) and certify that the above derivative contracts are meant for undertaking permitted current and / or capital account transactions. I also certify that I have not booked foreign exchange forward / FCY-INR options contracts with any other bank / branch. I have understood the risks inherent in booking of foreign exchange forward contracts / FCY-INR options contracts. Signature of the applicant Place: Date: Certificate by the Authorised Dealer Category – I bank This is to certify that the customer …………(Name of the applicant) having PAN No.……. has been maintaining an account ……..(no.) with us since ……..* We certify that the customer meets the AML / KYC guidelines laid down by RBI and confirm having carried out requisite suitability and appropriateness test. Name and designation of the authorized official: Place: Signature: Date: Stamp and seal * month / year [Removed]25 [Removed]26 Know Your Customer (KYC) Form in respect of the non-resident exporter/importer
We confirm that all the information furnished above is true and accurate as provided by the overseas remitting bank of the non-resident exporter/importer. (Signature of the Authorised Official of the AD bank) Date: Place: Stamp: Reporting of Derivative transactions undertaken by non-resident importer / exporter – for the quarter ended Name of the AD Category I Bank –
Reporting of suspicious transactions undertaken by non-resident importer / exporter – for the quarter ended ___________ Name of the AD Category I Bank –
List of Notifications which have been consolidated in the Master Direction - Risk Management and Inter-Bank Dealings List of circulars which have been consolidated in the Master Direction - Risk Management and Inter-Bank Dealings These circulars should be read in conjunction with FEMA, 1999 and the Rules/Regulations/Directions/Orders/Notifications issued thereunder. 1 A European option may be exercised only at the expiry date of the option, i.e. at a single pre-defined point in time. 2 A. P. (DIR Series) Circular No. 28 dated November 5, 2015 3 A.P. (DIR Series) Circular No. 78 dated February 13, 2015 4 SME as defined by the Rural Planning and Credit Department, Reserve Bank of India vide circular RPCD.PLNS. BC.No.63/06.02.31/2006-07 dated April 4, 2007. 5Rupee denominated bonds issued overseas may be hedged provided it is permitted under contracted exposure hedging. 6 Standardized format will be devised by Foreign Exchange Dealers Association of India (FEDAI) and will include details like transaction type, i.e. current account (import, export) or capital account (ECB, FPI, FDI etc.), amount, currency and tenor. 7 A.P. (DIR Series) No. 35 dated December 10, 2015 containing Amendment Directions issued under RBI Act, 1934 for introduction of cross-currency futures and options and exchange traded options in EUR-INR, GBP-INR and JPY-INR currency pairs. 8 A.P. (DIR Series) No. 35 dated December 10, 2015 containing Amendment Directions issued under RBI Act, 1934 for introduction of cross-currency futures and options and exchange traded options in EUR-INR, GBP-INR and JPY-INR currency pairs. 9 A.P. (DIR Series) Circular No. 30 dated February 2, 2017 10 A. P. (DIR Series) Circular No. 8 dated October 12, 2017. 11 A. P. (DIR Series) Circular No. 8 dated October 12, 2017. 12 A. P. (DIR Series) Circular No. 8 dated October 12, 2017. 13 In terms of A.P. (DIR Series) Circular No. 25 dated September 3, 2014 and A.P. (DIR Series) Circular No. 103 dated May 21, 2015 14 Refer A.P. (DIR Series) Circular No. 41 dated March 21, 2017 15 Rupee denominated bonds issued overseas may be hedged provided it is permitted under contracted exposure hedging. 16 Standardized format will be devised by Foreign Exchange Dealers Association of India (FEDAI) and will include details like transaction type, i.e. current account (import, export) or capital account (ECB, FPI, FDI etc.), amount, currency and tenor. 17 A. P. (DIR Series) Circular No. 102 May 21, 2015 18 A.P. (DIR Series) Circular No. 112 dated June 25, 2015 19 A.P. (DIR Series) Circular No. 78 dated June 23, 2016. Guidelines on Covered Options which is not considered a hedging / risk management strategy are included under this Master Direction so there is a single reference document in respect of foreign exchange derivatives. 20A. P. (DIR Series) Circular No. 3 dated August 10, 2017 21A. P. (DIR Series) Circular No. 3 dated August 10, 2017 22 Capital refers to Tier I capital as per instructions issued by Reserve Bank of India (Department of Banking Operations and Development). 23 RBI/2017-18/138 A.P. (DIR Series) Circular No. 19 dated March 12, 2018 24 RBI/2017-18/138 A.P. (DIR Series) Circular No. 19 dated March 12, 2018 25 RBI/2017-18/138 A.P. (DIR Series) Circular No. 19 dated March 12, 2018 26 RBI/2017-18/138 A.P. (DIR Series) Circular No. 19 dated March 12, 2018 |
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