Accordingly, the RBI has directed authorised dealers (ADs) to provide forward exchange cover to FIIs to the extent of 15 per cent of their outstanding equity investments. "Existing forward contracts entered into by FIIs in accordance with earlier instructions may, however, be allowed to continue till maturity even if the amount thereof exceeds 15 per cent of the investment outstanding as on March 31, 1999," a RBI circular to all authorised dealers released on April 24 said.

The Reserve Bank had permitted with effect from June 11, 1998, forward cover to FIIs to the extent of 15 per cent of their existing investment as on that date. Any incremental investment over the level prevailing on June 11, 1998 was also made eligible for forward cover. As a part of the simplification process, the current limits were extended up to March 31, 1999, by RBI governor Bimal Jalan in his annual credit and monetary policy announced on April 20. As a measure of further liberlisation, any FII which has exhausted the current limits can apply to RBI for additional forward cover for a further 15 per cent of their outstanding investments in India at the end of March 1999.

"Applications for further additional limits can be made more than once after the earlier limits have been exhausted. It may be mentioned that a case-by-case approach for approval of additional limits would be preferred in order to avoid building up of large unutilised positions. This should reduce the risk arising out of these positions being suddenly activated in the event of unexpected volatility in the forex market," Jalan said on April 20.

The April 24 RBI circular said that these requests should be made to the exchange control department with full particulars of forex facilities already availed of by the FII. The RBI has also decided that it would consider requests from export houses/trading houses/star trading houses/super star trading houses for availing of fund-based/non-fund based facilities from overseas banks for their trading offices abroad on merits provided the term and conditions subject to which such facilities are extended by overseas banks are reasonable.

The central bank has also decided that the authorised dealers may allow the exchange earners foreign currency (EEFC) account holders the facility of making payments from such accounts for eligible purposes by issue of cheques to the beneficiaries of the payments. "This facility may be introduced with effect from May 1, 1999. For this purpose ADs may issue separate cheque books to EEFC account holders which should be distinct from the cheques issued on domestic rupee accounts or NRE accounts and should be superscribed with the words `EEFC account'. ADs may fix their own requirement of minimum balance in the account for being eligible to avail of the cheque facility," the RBI directive said.