MUMBAI: Resident or non-resident individuals could cover their exchange rate risk up to $30 million both in exchange traded and over-the-counter platforms cutting derivative deals, the Reserve Bank of India said in its draft guidelines on Tuesday.
Resident entities with foreign currency exposures and non-resident entities with Rupee exposures, other than individuals, arising out of transactions permitted under Foreign Exchange Management Act, could avail the facility, the central bank said. This move is seen as an opportunity for wealthy investors hedge their foreign currency risk.
"To monitor activity under this facility, banks and exchanges will report customer data to the Trade Repository on a regular basis,” RBI said.
It released draft guidelines of Simplified Hedging Facility for Residents and Non-Residents which permits dynamic hedging of currency risk and simplifies the procedure involved in booking hedge contracts.
The central bank has invited comments on the draft guidelines from banks, market participants and other interested parties by May 05.
"Customers with total hedging requirement of up to USD 30 million at any point in time may enter into permitted forex derivative contracts with any Authorised Dealer (AD) bank up to his requirement," RBI said.
"The customer is not required to furnish any documentary evidence to the AD bank for establishing exposure."
The total amount of hedges booked, if they exceed USD 30 million, will be informed to the designated AD bank, the central bank said.
Source: The Economic Times