Reserve Bank Of India
A.P. (DIR Series) Circular No. 58
December 15, 2011
To,
All Authorised Dealer Category - I Banks
Madam / Sir,
Risk Management and Inter Bank Dealings
Attention of Authorized Dealers Category – I (AD Category – I) banks is invited
to the Foreign Exchange Management (Foreign Exchange Derivative Contracts)
Regulations, 2000 dated May 3, 2000
[Notification No.FEMA/25/RB-2000 dated May
3, 2000] and
A.P.(DIR Series) Circular No.32 dated December 28, 2010, as amended
from time to time.
- Keeping in view the developments in the foreign exchange market, it has been
decided to implement the following measures with immediate effect until further
review.
- Under contracted exposures, forward contracts, involving the Rupee as one of
the currencies, booked by residents to hedge current account transactions,
regardless of the tenor, and to hedge capital account transactions, falling due
within one year, were allowed to be cancelled and rebooked.
It has now been decided to withdraw the above facility. Forward contracts booked
by residents irrespective of the type and tenor of the underlying exposure, once
cancelled, cannot be rebooked.
- Under probable exposures based on past performance residents were allowed 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. Further, contracts booked in excess
of 75 per cent of the eligible limit were to be on deliverable basis and could
not be cancelled.
It has now been decided that
- For importers availing of the above past performance facility, the facility
stands reduced to 25 percent of the limit as computed above, i.e., 25 percent of
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. In case of importers who have already utilised in excess of
the revised / reduced limit, no further bookings may be allowed under this
facility.
- All forward contracts booked under this facility by both exporters and importers
hence forth will be on fully deliverable basis. In case of cancellations,
exchange gain, if any, should not be passed on to the customer.
- All cash/tom/spot transactions by the Authorised Dealers on behalf of
clients will be undertaken for actual remittances / delivery only and cannot be
cancelled / cash settled.
- Foreign Institutional Investors (FIIs) are currently allowed to hedge
currency risk on the market value of entire investment in equity and/or debt in
India as on a particular date. The contracts once cancelled cannot be rebooked
except to the extent of 10 per cent of the market value of the portfolio as at
the beginning of the financial year. The forward contracts may, however, be
rolled over on or before maturity.
It has now been decided that henceforth forward contracts booked by the FIIs,
once cancelled, cannot be rebooked. The forward contracts may, however, be
rolled over on or before maturity.
- The Board of Directors of Authorised Dealers were allowed to fix suitable
limits for various Treasury functions with net overnight open exchange position
and aggregate gap limits required to be approved by the Reserve Bank.
It has now been decided that
- Net Overnight Open Position Limit (NOOPL) of Authorised Dealers would be reduced
across the board. Revised limits in respect of individual banks are being
advised to the Authorised Dealers separately.
- Intra-day open position / daylight limit of Authorised Dealers should not exceed
the existing NOOPL approved by the Reserve Bank.
- The above arrangement would be reviewed on an ongoing basis keeping in view the
evolving market conditions.
- Necessary amendments to Notification No. FEMA.25/RB-2000 dated May 3, 2000
[Foreign Exchange Management (Foreign Exchange Derivatives Contracts)
Regulations, 2000] are being notified separately.
- AD Category - I banks may bring the contents of this circular to the notice
of their constituents and customers.
- The directions contained in this circular have been issued under sections
10(4) and 11(1) of the Foreign Exchange Management Act 1999 (42 of 1999) and are
without prejudice to permissions/approvals, if any, required under any other
law.
Yours faithfully,
(Meena Hemchandra)
Chief General Manager
RBI/2011-12/300
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