Hedging of Freight Risk by domestic oil-refining, shipping companies and other companies

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....ed to enter into a contract in a commodity exchange or market outside India, to hedge price risk in a commodity subject to certain terms and conditions. Further, in terms of A. P.(DIR Series) Circular No. 03, dated July 23, 2005, select AD Category - I banks have been delegated the authority to grant permission to listed companies to hedge commodity price risk in the international commodity exchanges / markets, subject to the conditions mentioned therein. 2. As announced in the Mid-term review of Annual Policy Statement for the Year 2008-09 (Para 146), it has been decided to delegate powers to AD Category - I banks, which have been granted permission by the Reserve Bank to approve commodity hedging, to allow hedging of freight risk by do....

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....hips. The same may be certified by a Chartered Accountant to the AD Category - I bank. (ii) Contracts booked will have to be regularized by production of underlying documents i.e. employment of the ship during the currency of the hedge. An undertaking may be obtained from the company to this effect. (ii) AD Category - I banks may also ensure that the freight derivatives being entered into by the shipping companies are reflective of the underlying business of the shipping companies. v). AD Category - I banks should ensure that the entities hedging their freight exposures should have Board approved Risk Management policies which define the overall framework within which derivative transactions should be undertaken and the risks conta....

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.... Act, 1999 (42 of 1999) and are without prejudice to permissions/approvals, if any, required under any other law.  Yours faithfully, (Salim Gangadharan) Chief General Manager-in-Charge Hedging of Freight Risk by domestic oil-refining, shipping companies and other companies It was proposed in the Mid-Term Review of the Annual Policy for the Year 2008-09 (para 146) to permit domestic oil and shipping companies to hedge their freight risk with overseas exchanges / OTC markets with a view to facilitate better management of freight risk. Accordingly, the draft circular, delegating powers to AD Category - I banks to allow hedging of freight risk is placed below for approval. In respect of other customers who are exposed to ....