RBI’s October directions change how authorised dealers, including banks permitted to conduct foreign-exchange business, handle derivatives involving the rupee. The 10 October directions prohibit rebooking contracts cancelled after their issuance, while allowing eligible contracts to be rolled over at maturity. They reduce the threshold for positions that can be taken without establishing the underlying exposure from US$100 million to US$5 million and require undertakings to prevent the same exposure being hedged more than once.
A separate 10 October circular requires authorised dealers to maintain a Foreign Exchange Risk Reserve for specified new contracts exceeding US$2 million that hedge current-account transactions where the customer buys foreign currency against rupees. The reserve equals 20% of the contract’s rupee-equivalent notional amount and must be held in cash with RBI until termination. This is an obligation on the authorised dealer. It may affect the pricing and availability of hedges offered to companies.
On 12 October, RBI introduced a corresponding reserve requirement for covered hedges of authorised dealers’ own assets and liabilities and restricted rupee non-deliverable contracts offered to non-residents to hedging purposes. Boards of companies with material currency exposures should obtain an updated treasury assessment of documentation, contract renewals, hedging costs and liquidity requirements.
RBI Circular 25 | RBI Circular 26 | RBI Circular 27
