Simplified Hedging Norms For Exchange Rate Risks By RBI

There are simplified norms set up by RBI recently for hedging exchange rate risks. Under this, the companies are allowed to take up to USD 30 million on a gross basis.  Though the draft scheme of simplified hedging facility was released in April 2017, its first official announcement was made by the Reserve Bank of India in August 2016."The facility is being introduced with a view to simplify the process for hedging exchange rate risk by reducing documentation requirements, avoiding prescriptive stipulations regarding products, purpose and hedging flexibility, and to encourage a more dynamic and efficient hedging culture," said an RBI notification.The provisions for resident and non-resident firms (other than individuals) contracted or anticipated, to hedge exchange rate risk on transactions, made permissible under Foreign Exchange Management Act (FEMA) will come into force from  January 1, 2018.“The products covered under this will be any Over the Counter (OTC) derivative or Exchange Traded Currency Derivatives(ETCD)”, the RBI said, adding cap on outstanding contracts is "USD 30 million, or its equivalent, on a gross basis"."If hedging requirement of the user exceeds the limit in course of time, the designated bank may re-assess and, at its discretion, extend the limit up to 150 percent of the stipulated cap," the guidelines read.It also said that internal policy is mandatory for banks with respect to the deadline up to which a hedge contract for a given latent can be rebooked by the user or rolled over.
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Simplified Hedging Norms For Exchange Rate Risks By RBI

Piuesh Daga
Blog
24th Nov, 2017
Simplified Hedging Norms For Exchange Rate Risks By RBI

There are simplified norms set up by RBI recently for hedging exchange rate risks. Under this, the companies are allowed to take up to USD 30 million on a gross basis.  

Though the draft scheme of simplified hedging facility was released in April 2017, its first official announcement was made by the Reserve Bank of India in August 2016.

"The facility is being introduced with a view to simplify the process for hedging exchange rate risk by reducing documentation requirements, avoiding prescriptive stipulations regarding products, purpose and hedging flexibility, and to encourage a more dynamic and efficient hedging culture," said an RBI notification.

The provisions for resident and non-resident firms (other than individuals) contracted or anticipated, to hedge exchange rate risk on transactions, made permissible under Foreign Exchange Management Act (FEMA) will come into force from  January 1, 2018.

“The products covered under this will be any Over the Counter (OTC) derivative or Exchange Traded Currency Derivatives(ETCD)”, the RBI said, adding cap on outstanding contracts is "USD 30 million, or its equivalent, on a gross basis".

"If hedging requirement of the user exceeds the limit in course of time, the designated bank may re-assess and, at its discretion, extend the limit up to 150 percent of the stipulated cap," the guidelines read.

It also said that internal policy is mandatory for banks with respect to the deadline up to which a hedge contract for a given latent can be rebooked by the user or rolled over.

Piuesh
Blog Author

Piuesh is the cofounder of White Matter Advisory and is responsible for the overall delivery and execution at WMA. He profoundly believes in significance of financial literacy in emerging markets. He is the youngest amongst the co-founders with an overall experience of 7+ years in the banking industry.

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