RBI eases norms for forex risk hedging

Published: December 6, 2019 3:25:39 AM

Businesses or institutional investors trading in different currencies resort to foreign exchange hedging to safeguard themselves against currency volatility.

RBI, forex risk, OTC currency, Fema, Usha Thorat, SBI chairman, Rajnish KumarRBI also said banks shall be provided with the discretion, in exceptional circumstances, to pass on net gains on hedge transactions booked on anticipated exposures.

By Urvashi Valecha

The Reserve Bank of India (RBI) on Thursday notified changes to the draft guidelines on foreign exchange
hedging by resident and non-resident Indians, stating that users can undertake over the counter (OTC) currency
derivative transactions up to $10 million, without the need to evidence underlying exposure.

Businesses or institutional investors trading in different currencies resort to foreign exchange hedging to safeguard themselves against currency volatility. SBI chairman Rajnish Kumar said the decision to allow OTC currency
derivatives transactions up to $10 million without evidence of underlying exposure will provide a fresh breath of life to this market.

“This will give it much required depth going forward,” he said. RBI also said banks shall be provided with the discretion, in exceptional circumstances, to pass on net gains on hedge transactions booked on anticipated exposures. Additionally, RBI said it wanted to strengthen the safeguards to ensure that complex derivatives were sold only to users who were capable of managing risks.

The draft regulations were modified based on the feedback and the recommendations of the The Task Force on
Offshore Rupee Markets chaired by Usha Thorat. The central bank said the final directions will be issued after notification of the changes to Foreign Exchange Management Act (Fema) Regulations.

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