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of <h1>RBI Clarifies Hedging Rules for ECBs: Mandates 100% Hedging of Principal and Coupon Payments with Financial Hedges.</h1> The circular issued by the Reserve Bank of India (RBI) provides clarifications on hedging requirements for External Commercial Borrowings (ECB). It mandates that ECB borrowers must hedge both principal and coupon payments through financial hedges from the time of exposure creation. A minimum tenor of one year for financial hedges with periodic rollovers is required to ensure no unhedged exposure during the ECB's currency. Natural hedges are acceptable only if they offset projected cash flows in matching currency within the same accounting year. Authorized Dealer Category-I banks must verify compliance with the 100% hedging requirement, while other ECB policy aspects remain unchanged.
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