TaxTMI 
TaxTMI 
Master Circular on Risk Management and Inter-Bank Dealings (Updated as on March 31, 2015)
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....anungo) Principal Chief General Manager INDEX PART - A RISK MANAGEMENT SECTION I Facilities for Persons Resident in India other than Authorised Dealers Category-I SECTION II Facilities for Persons Resident outside India SECTION III Facilities for Authorised Dealers Category-I PART-B ACCOUNTS OF NON-RESIDENT BANKS PART-C INTER-BANK FOREIGN EXCHANGE DEALINGS PART-D REPORTS TO THE RESERVE BANK Annex I Annex II Annex III Annex IV Annex V Annex VI Annex VII Annex VIII Annex IX Annex X Annex XI Annex XII Annex XIII Annex XIV Annex XV Annex XVI Annex XVII Annex XVIII Annex XIX Annex XX Appendix PART - A RISK MANAGEMENT SECTION I Facilities for Persons Resident in India other than Authorised Dealers Category-I The facilities for persons resident in India (other than AD Category I banks) are elaborated under paragraphs A and B. Paragraph A describes the products and operational guidelines for the respective product. In addition to the operational guidelines under A, the general instructions that are applicable across all products for residents (other than A....
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....xchange rate risk in respect of the market value of overseas direct investments (in equity and loan). • Contracts covering overseas direct investment (ODI) can be cancelled or rolled over on due dates. If a hedge becomes naked in part or full owing to contraction ( due to price movement/impairment) of the market value of the ODI, the hedge may be allowed to continue until maturity, if the customer so desires. Rollovers on due date shall be permitted up to the extent of the market value as on that date. c) To hedge exchange rate risk of transactions denominated in foreign currency but settled in INR, including hedging the economic (currency indexed) exposure of importers in respect of customs duty payable on imports. • Forward foreign exchange contracts covering such transactions will be settled in cash on maturity. • These contracts once cancelled, are not eligible to be rebooked. • In the event of any change in the rate(s) of customs duties, due to Government notifications subsequent to the date of the forward contracts, importers may be allowed to cancel and/or rebook the contracts before maturity. Operational Guidelines, ....
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....ow. i) The facility of rebooking should not be permitted unless the corporate has submitted the exposure information as prescribed in Annex V. j) Substitution of contracts for hedging trade transactions may be permitted by an AD Category I bank on being satisfied with the circumstances under which such substitution has become necessary. The AD Category I bank may also verify the amount and tenor of the underlying substituted. ii) Cross Currency Options (not involving Rupee) Participants Market-makers - AD Category I banks as approved for this purpose by the Reserve Bank Users - Persons resident in India Purpose • To hedge exchange rate risk arising out of trade transactions. • To hedge the contingent foreign exchange exposure arising out of submission of a tender bid in foreign exchange. Operational Guidelines, Terms and Conditions • AD Category I banks can only offer plain vanilla European options. • Customers can buy call or put options. • These transactions may be freely booked and/ or cancelled subject to verification of the underlying. • All guidelines applicable for cross cur....
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.... • Net worth not less than Rs. 300 crore • CRAR of 10 per cent • Net NPAs not exceeding 3 per cent of the net advances • Continuous profitability for at least three years The Reserve Bank will consider the application and accord a one-time approval at its discretion. AD Category I banks are expected to manage the option portfolio within the Reserve Bank approved risk management limits. f) AD banks may quote the option premium in Rupees or as a percentage of the Rupee/foreign currency notional. g) Option contracts may be settled on maturity either by delivery on spot basis or by net cash settlement in Rupees on spot basis as specified in the contract. In case of unwinding of a transaction prior to the maturity, the contract may be cash settled based on market value of an identical off-setting option. h) Market makers are allowed to hedge the 'Delta' of their option portfolio by accessing the spot and forward markets. Other 'Greeks' may be hedged by entering into option transactions in the inter-bank market. i) The 'Delta' of the option contract would form part of the overnight open position. j) The 'Delta' equivalent....
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.... after the expiry of the tenor of the original swap contract that had been cancelled. • AD Category I banks should not offer leveraged swap structures. Typically, in leveraged swap structures, a multiplicative factor other than unity is attached to the benchmark rate(s), which alters the payables or receivables vis-à-vis the situation in the absence of such a factor. • The notional principal amount of the swap should not exceed the outstanding amount of the underlying loan. • The maturity of the swap should not exceed the remaining maturity of the underlying loan. v) Cost Reduction Structures i.e. cross currency option cost reduction structures and foreign currency -INR option cost reduction structures. Participants Market-makers - AD Category I banks Users - Listed companies and their subsidiaries/joint ventures/associates having common treasury and consolidated balance sheet or unlisted companies with a minimum net worth of Rs. 200 crore provided • All such products are fair valued on each reporting date; • The companies follow the Accounting Standards notified under section 211 of the Companie....
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.... Interest rate cap or collar (purchases), Forward rate agreement (FRA) Participants Market-makers - • AD Categ ory I banks in India • Branch outside India of an Indian bank authorized to deal in foreign exchange in India • Offshore banking unit in a SEZ in India. Users - Persons resident in India who have borrowed foreign exchange in accordance with the provisions of Foreign Exchange Management (Borrowing and Lending in Foreign Exchange) Regulations, 2000. Purpose For hedging interest rate risk and currency risk on loan exposure and unwinding from such hedges. Operational Guidelines, Terms and Conditions • The products, as detailed above should not involve the rupee under any circumstances. • Final approval has been accorded or Loan Registration Number allotted by the Reserve Bank for borrowing in foreign currency. • The notional principal amount of the product should not exceed the outstanding amount of the foreign currency loan. • The maturity of the product should not exceed the unexpired maturity of the underlying loan. • The contracts may be cancelled an....
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....computed separately for import/export transactions. e) Higher limits will be permitted on a case-by-case basis on application to the Foreign Exchange Department, Central Office, Reserve Bank of India. The additional limits, if sanctioned, shall be on a deliverable basis. f) Any contract booked without producing documentary evidence will be marked off against this limit. These contracts once cancelled, are not eligible to be rebooked. Rollovers are also not permitted. g) AD banks should permit their clients to use the past performance facility only after satisfying themselves that the following conditions are complied with: i. An undertaking may be taken from the customer that supporting documentary evidence will be produced before the maturity of all the contracts booked. ii. Importers and exporters should furnish a quarterly declaration to the AD Category I banks, signed by the Chief Financial Officer (CFO) and the Company Secretary (CS), regarding amounts booked with other AD Category I banks under this facility, as per Annex VI. In the absence of a CS, the Chief Executive Officer (CEO) or the Chief Operating Officer (COO) shall co-sign the undertaking along ....
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....al Guidelines: Small and Medium Enterprises (SMEs) having direct and / or indirect exposures to foreign exchange risk are permitted to book / cancel / / roll over forward contracts without production of underlying documents to manage their exposures effectively, subject to the following conditions: • Such contracts may be booked through AD Category I banks with whom the SMEs have credit facilities and the total forward contracts booked should be in alignment with the credit facilities availed by them for their foreign exchange requirements or their working capital requirements or capital expenditure. • AD Category I bank should carry out due diligence regarding "user appropriateness" and "suitability" of the forward contracts to the SME customers as per Para 8.3 of 'Comprehensive Guidelines on Derivatives' issued vide DBOD.No.BP.BC.44/21.04.157/2011-12 dated November 2, 2011. • The SMEs availing this facility should furnish a declaration to the AD Category I bank regarding the amounts of forward contracts already booked, if any, with other AD Category I banks under this facility. ii) Resident Individuals, Firms and Companies Part....
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.... that the derivative transactions are authorized and that the Board (or the equivalent forum in case of partnership or proprietary firms) is aware of the same. b) In the case of contracted exposure, AD Category I banks must obtain: i) An undertaking from the customer that the same underlying exposure has not been covered with any other AD Category I bank/s. Where hedging of the same exposure is undertaken in parts, with more than one AD Category I bank, the details of amounts already booked with other AD Category I bank/s should be clearly indicated in the declaration. This undertaking can also be obtained as a part of the deal confirmation. ii) An annual certificate from the statutory auditors to the effect that the contracts outstanding with all AD category I banks at any time during the year did not exceed the value of the underlying exposures at that time. It is reiterated, however, that that the AD bank, while entering into any derivative transaction with a client, shall have to obtain an undertaking from the client to the effect that the contracted exposure against which the derivative transaction is being booked has not been used for any derivative transaction with ....
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....8.12.001/2008-09 dated December 8, 2008. 4. Currency Futures on recognised Stock /New Exchanges As part of further developing the derivatives market in India and adding to the existing menu of foreign exchange hedging tools available to the residents and non-residents, currency futures contracts have been permitted to be traded in recognized stock exchanges or new exchanges, recognized by the Securities and Exchange Board of India (SEBI) in the country. The currency futures market would function subject to the directions, guidelines, instructions issued by the Reserve Bank and the SEBI, from time to time. Persons resident in India are permitted to participate in the currency futures market in India subject to directions contained in the Currency Futures (Reserve Bank) Directions, 2008 [Notification No.FED.1/DG(SG)-2008 dated August 6, 2008] (Directions) and Notification No.FED.2/ED (HRK)-2009 dated January 19, 2010 issued by the Reserve Bank of India, which have been issued under Section 45W of the Reserve Bank of India Act, 1934. Currency futures are subject to following conditions: Permission (i) Currency futures are permitted in US Dollar (USD) - Indian Rupee (....
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....limits, such as Net Open Position (NOP) and Aggregate Gap (AG) limits. Risk Management measures The trading of currency futures shall be subject to maintaining initial, extreme loss and calendar spread margins and the Clearing Corporations / Clearing Houses of the exchanges should ensure maintenance of such margins by the participants on the basis of the guidelines issued by the SEBI from time to time. Surveillance and disclosures The surveillance and disclosures of transactions in the currency futures market shall be carried out in accordance with the guidelines issued by the SEBI. Authorisation to Currency Futures Exchanges / Clearing Corporations Recognized stock exchanges and their respective Clearing Corporations / Clearing Houses shall not deal in or otherwise undertake the business relating to currency futures unless they hold an authorization issued by the Reserve Bank under section 10(1) of the Foreign Exchange Management Act, 1999. 5. Currency Options on recognised Stock /New Exchanges In order to expand the existing menu of exchange traded hedging tools available to the residents and non residents, plain vanilla currency options contracts have bee....
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.... AD Category - I banks, which fulfil the prudential requirements, should lay down detailed guidelines with the approval of their Boards for trading and clearing of the exchange traded currency options contracts and management of risks. iii) AD Category - I banks, which do not meet the above minimum prudential requirements and AD Category - I banks, which are Urban Co-operative banks or State Co-operative banks, can participate in the exchange traded currency options market only as clients, subject to approval therefor from the respective regulatory Departments of the Reserve Bank. Position limits i) The position limits for various classes of participants for the currency options shall be subject to the guidelines issued by the SEBI. ii) The AD Category - I banks shall operate within prudential limits, such as Net Open Position (NOP) and Aggregate Gap (AG) limits. Risk Management measures The trading of exchange traded currency options shall be subject to maintaining initial, extreme loss and calendar spread margins and the Clearing Corporations / Clearing Houses of the exchanges should ensure maintenance of such margins by the participants on the basis of the guid....
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....o the effect that at all time, the sum total of the outstanding OTC derivative contracts and the outstanding ETCD contracts shall be corresponding to the actual exports or imports contracted, as the case may be. • Based on the above certificate, a trading member can book ETCD contracts upto fifty per cent of the eligible limit [as at paragraph (i) above] on behalf of the concerned customer. If a participant wishes to take position beyond the fifty per cent of the eligible limit in the ETCD, it has to produce a signed undertaking from the Chief Financial Officer (CFO) or the senior most functionary responsible for company's finance and accounts and the Company Secretary (CS) to the effect that the sum total of the outstanding OTC derivative contracts and outstanding ETCD contracts has been in correspondence with the eligible limits. In the absence of a CS, the Chief Executive Officer (CEO) or the Chief Operating Officer (COO) shall co-sign the undertaking along with the CFO or the senior most functionary responsible for company's finance and accounts. Based on such an undertaking, the trading member can book ETCD contracts beyond fifty per cent of the limit and ....
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....eu of making a direct remittance towards payment obligations arising out of commodity derivative transactions entered into by customers with overseas counterparties, AD Category I banks may issue guarantees/standby letters of credit to cover these specific payment obligations related to commodity derivatives, subject to the conditions/guidelines in Annex XV. It is clarified that the term Board, wherever used refers to Board of Directors or the equivalent forum in case of partnership or proprietary firms. The facility is divided into following categories: I) Delegated Route a. Hedging of price risk on actual Import/Export of commodities Participants Users: Companies in India engaged in import and export of commodities Facilitators: AD Category I banks. Purpose: To hedge price risk of the imported/exported commodity Products: Standard exchange traded futures and options (purchases only) in international commodity exchanges. If risk profile warrants -may use OTC contracts overseas. Operational Guidelines AD Category I banks satisfying certain minimum norms, and authorized by the Reserve Bank may grant permission to companies listed on a recognized stock exch....
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....ures in respect of ATF based on domestic purchases. Products: Standard exchange traded futures and options (purchases only) in international commodity exchanges. If risk profile warrants - may use OTC contracts overseas. Operational Guidelines: a) AD Category I banks should ensure that permission for hedging ATF is granted only against firm orders. b) AD Category I banks should retain necessary documentary evidence. c) AD Category I banks would require the user to submit a Board resolution certifying Board approved policies which define the overall framework within which derivatives activities should be conducted and the risks controlled. d) All other conditions and guidelines as per Annex XI (A & B) should be complied with. (iii) Domestic purchases of crude oil and sales of petro-products Participants Users: Domestic crude oil refining companies. Facilitators: AD Category I banks Purpose: To hedge commodity price risk on domestic purchases of crude oil and domestic sales of petroleum products, which are linked to international prices. Products: Standard exchange traded futures and options (purchases only) in international commodity exchanges. If....
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....asis. (The term ''standalone'' means the unit in SEZ is completely isolated from financial contacts with its parent or subsidiary in the mainland or within the SEZs as far as its import/export transactions are concerned.) NOTE: The detailed guidelines in respect of Delegated Route and Approval Route are given in the Annex XI and XII respectively. 8. Freight hedging Domestic oil refining companies and shipping companies exposed to freight risk, are permitted to hedge their freight risk by the AD Category I banks authorized by the Reserve Bank. Other companies exposed to freight risk can seek prior permission from the Reserve Bank through their AD Category I bank. It may be noted that the role of Authorized Dealer banks here is primarily to provide facilities for remitting foreign currency amounts towards margin requirements from time to time, subject to verification of the underlying exposure. This facility must not be used in conjunction with any other derivative product. The facility is divided into following categories: I) Delegated Route Participant: Users: Domestic oil-refining companies and shipping companies. Facilitators: AD Category I....
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.... will have to be regularized by production of underlying documents during the currency of the hedge. An undertaking may be obtained from the company to this effect. (b) For shipping companies: • The hedging will be on the basis of owned / controlled ships of the shipping company which have no committed employment. The quantum of hedge will be determined by the number and capacity of these ships. The same may be certified by the statutory auditor and submitted to the AD Category I bank. • 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. • 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. II) Approval Route Participants Users: Companies (other than domestic oil-refining companies and shipping companies) who are exposed to freight risk Facilitators : AD Category I banks Purpose: To hedge freight risk Products: Plain vanilla Over the Counter (....
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.... total amount of derivatives contract booked across AD Category banks are within the market value of its investments. • The hedges taken with AD banks other than designated AD banks have to be settled through the Special Non-Resident Rupee A/c maintained with the designated bank through RTGS/NEFT. • If an FII wishes to enter into a hedge contract for the exposure relating to that part of the securities held by it against which it has issued any PN/ODI, it must have a mandate from the PN/ODI holder for the purpose. Further, while AD Category bank is expected to verify such mandates, in cases where this is rendered difficult, they may obtain a declaration from the FII regarding the nature/structure of the PN/ODI establishing the need for a hedge operation and that such operations are being undertaken against specific mandates obtained from their clients. b) AD Category I banks may undertake periodic reviews, at least at quarterly intervals, on the basis of market price movements, fresh inflows, amounts repatriated and other relevant parameters to ensure that the forward cover outstanding is supported by underlying exposures. In this context, it is clarifi....
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....t ultimately receives the proceeds of the remittance. While the first bank will be privy to the details of the remitter and the purpose of the remittance, the second bank, will have access to complete information from the recipient's perspective. Besides, the remittance receiving bank is required to issue FIRC to the bank receiving the proceeds to establish the fact the funds had been remitted in foreign currency. 2. Terms and conditions for Foreign Portfolio Investors participating in the Exchange Traded Currency Derivatives (ETCD) [Refer Part A, sub-paragraphs (4) & (5)] Foreign portfolio investors (FPIs) eligible to invest in securities as laid down in Schedules 2, 5, 7 and 8 of the Foreign Exchange Management (Transfer or Issue of Security by a person resident outside India) Regulations, 2000 (FEMA 20/2000-RB dated May 3, 2000 (GSR 406 (E) dated May 3, 2000)) as amended from time to time may enter into currency futures or exchange traded currency options contracts subject to the following terms and conditions: • FPIs will be allowed access to the currency futures or exchange traded currency options for the purpose of hedging the currency risk arising out ....
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....of investment made under the portfolio scheme in accordance with provisions of FERA, 1973 or under notifications issued there under or in accordance with provisions of FEMA, 1999. • To hedge the exchange rate risk on the amount of dividend due on shares held in Indian companies. • To hedge the exchange rate risk on the amounts held in FCNR (B) deposits. • To hedge the exchange rate risk on balances held in NRE account. Products • Forward foreign exchange contracts with rupee as one of the currencies, and foreign currency-INR options. • Additionally, for balances in FCNR (B) accounts - Cross currency (not involving the rupee) forward contracts to convert the balances in one foreign currency to other foreign currencies in which FCNR (B) deposits are permitted to be maintained. 4. Facilities for Hedging Foreign Direct Investment in India Purpose • To hedge exchange rate risk on the market value of investments made in India since January 1, 1993, subject to verification of the exposure in India • To hedge exchange rate risk on dividend receivable on the investments in Indian companies ....
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....rade transaction (scanned copies would be acceptable). The following undertakings also need to be taken from the customer: • That the same underlying exposure has not been hedged with any other AD Category I bank/s in India. • If the underlying exposure is cancelled, the customer will cancel the hedge contract immediately. • A certification on the end client KYC may also be taken as a one time document from the overseas bank by the AD bank in India. • The AD bank in India based on documents received from the overseas correspondent should satisfy itself about the existence of the underlying trade transaction and offer a forward price (no two-way quotes should be given) to the overseas bank who, in turn, will offer the same to its customer. The AD bank, therefore, will 'not be' dealing directly with the overseas importer / exporter. • The amount and tenor of the hedge should not exceed that of the underlying transaction and should be in consonance with the extant regulations regarding tenor of payment / realization of the proceeds. • On due date, settlement is to be done through the correspondent bank's Vos....
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....Vostro or the AD bank's Nostro accounts. AD banks in India may release funds to the beneficiaries only after sighting funds in Nostro / Vostro accounts. • The contracts, once cancelled, cannot be rebooked. • The contracts may, however, be rolled over on or before maturity subject to maturity of the underlying exposure. • On cancellation of the contracts, gains may be passed on to the customer subject to the customer providing a declaration that he is not going to rebook the contract or that the contract has been cancelled on account of cancellation of the underlying exposure. • In case the underlying trade transaction is extended, rollover can be permitted once based on the extension of the underlying trade transaction for which suitable documentation is to be provided by the overseas bank and the same procedure followed as in case of the original contract. 6. Facilities for Hedging of ECBs, designated in Indian Rupees, in India Purpose To hedge the currency risk arising out of ECBs designated in INR with AD Category- I banks in India. Products Forward foreign exchange contracts with rupee as one of the currencies, ....
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....their permissible investments with the AD Category-I bank with whom they are maintaining the Rupee Account opened for the purpose of investment. • The eligibility for cover may be determined on the basis of the declaration of the QFI with periodic review undertaken by the AD Category I bank based on the investment value as provided / certified by QDP of the QFI at least at quarterly intervals, on the basis of market price movements, fresh inflows, amounts repatriated and other relevant parameters to ensure that the forward cover outstanding is supported by underlying exposures. • If a hedge becomes naked in part or in full owing to contraction of the market value of the portfolio, for reasons other than sale of securities, the hedge may be allowed to continue till the original maturity, if so desired. • Forward contracts booked by QFIs, once cancelled, can be rebooked up to the extent of 10 per cent of the value of the contracts cancelled. The forward contracts booked may, however, be rolled over on or before maturity. • The cost of hedge should be met out of repatriable funds and /or inward remittance through normal banking chann....
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....Operations and Development (including the positions arising out of inter-bank gold deals) Purpose - To hedge price risk of gold Products - Exchange-traded and over-the-counter hedging products available overseas. Operational Guidelines, Terms and Conditions • While using products involving options, it may be ensured that there is no net receipt of premium, either direct or implied. • Authorised banks are permitted to enter into forward contracts with their constituents (exporters of gold products, jewellery manufacturers, trading houses, etc.) in respect of the underlying sale, purchase and loan transactions in gold with them, subject to the conditions specified by the Reserve Bank in this regard. The tenor of such contracts should not exceed six months. 3. Hedging of Capital Users - Foreign banks operating in India Product - Forward foreign exchange contracts Operational Guidelines, Terms and Conditions a) Tier I capital - • The capital funds should be available in India to meet local regulatory and CRAR requirements and, hence, these should not be parked in nostro accounts. Foreign currency funds accruing out of hedgi....
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.... undertake proprietary trading in the ETCD market within their Net Open Position Limit (NOPL) and any limit that may be imposed by the exchanges for the purpose of risk management and preserving market integrity. (f) AD Category-I banks may also net / offset their positions in the ETCD market against the positions in the OTC derivatives markets. Keeping in view the volatility in the foreign exchange market, Reserve Bank may however stipulate a separate sub-limit of the NOPL (as a percentage thereof) exclusively for the OTC market as and when required. 5. Participation in the exchange traded currency options market in India Please refer to Part-A Section I, paragraph 5. In continuation of the same: a) AD Category - I banks are permitted to become trading and clearing members of the exchange traded currency options market of the recognized stock exchanges, on their own account and on behalf of their clients, subject to fulfilling the following minimum prudential requirements: • Minimum net worth of Rs. 500 crores. • Minimum CRAR of 10 per cent. • Net NPA should not exceed 3 per cent. • Made net profit for last 3 years. ....
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.... Currencies Balances held in Rupee accounts of non-resident banks may be freely converted into foreign currency. All such transactions should be recorded in Form A2 and the corresponding debit to the account should be in form A3 under the relevant Returns. 6. Responsibilities of Paying and Receiving Banks In the case of credit to accounts the paying banker should ensure that all regulatory requirements are met and are correctly furnished in form A1/A2 as the case may be. 7. Refund of Rupee Remittances Requests for cancellation or refund of inward remittances may be complied with without reference to Reserve Bank after satisfying themselves that the refunds are not being made in cover of transactions of compensatory nature. 8. Overdrafts / Loans to Overseas Branches/ Correspondents (i) AD Category I banks may permit their overseas branches/ correspondents temporary overdrawals not exceeding Rs. 500 lakhs in aggregate, for meeting normal business requirements. This limit applies to the amount outstanding against all overseas branches and correspondents in the books of all the branches of the authorised AD Category I bank in India. This facility should not be used....
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....arkets (i) Inflows into foreign currency accounts arise primarily from client-related transactions, swap deals, deposits, borrowings, etc. AD Category I banks may maintain balances in foreign currencies up to the levels approved by the Board. They are free to manage the surplus in these accounts through overnight placement and investments with their overseas branches/correspondents subject to adherence to the gap limits approved by the Reserve Bank. (ii) AD Category I banks are free to undertake investments in overseas markets up to the limits approved by their Board. Such investments may be made in overseas money market instruments and/or debt instruments issued by a foreign state with a residual maturity of less than one year and rated at least as AA (-) by Standard & Poor / FITCH IBCA or Aa3 by Moody's. For the purpose of investments in debt instruments other than the money market instruments of any foreign state, bank's Board may lay down country ratings and country - wise limits separately wherever necessary. NOTE: For the purpose of this clause, 'money market instrument' would include any debt instrument whose life to maturity does not exceed one year....
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.... Mumbai 400001, within 15 days from the close of the month in which the limit was exceeded. Such a report is not necessary if arrangements exist for value dating. b) The funds so raised may be used for purposes other than lending in foreign currency to constituents in India and repaid without reference to the Reserve Bank. As an exception to this rule, AD Category I banks are permitted to use borrowed funds as also foreign currency funds received through swaps for granting foreign currency loans for export credit in terms of IECD Circular No 12/04.02.02/2002-03 dated January 31, 2003. Any fresh borrowing above this limit shall be made only with the prior approval of the Reserve Bank. Applications for fresh ECBs should be made as per the current ECB Policy. c) The following borrowings would continue to be outside the limit of 100 per cent of unimpaired Tier I capital or USD 10 million (or its equivalent), whichever is higher: • Overseas borrowings by AD Category I banks for the purpose of financing export credit subject to the conditions prescribed in DBOD Master Circular dated July 2, 2013 on Rupee / Foreign Currency Export Credit & Customer Service To Exporters.....
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....banks should forward details of exposures in foreign exchange as at the end of every quarter as per the format indicated in Annex-V. ADs should submit this report as per the revised format online only from quarter ended September 2013 through the Extensible Business Reporting Language (XBRL) system which may be accessed at https://secweb.rbi.org.in/orfsxbrl/. AD Category - I banks which require login ID / passwords for accessing XBRL system may submit their e-mail addresses and contact numbers to email. Please note that details of exposures of all corporate clients who meet the prescribed criteria have to be included in the report. The AD banks should submit this report based on bank's books and not based on corporate returns. v) Authorised Dealers Category I should forward details of option transactions (FCY-INR) undertaken on a weekly basis as per the format indicated in Annex VIII. v) AD Category-I banks have to report their total outstanding foreign currency borrowings under all categories as on the last Friday of every month as per the format in Annex-IX. The report should be received by the 10th of the following month. vi) AD Category-I banks are requ....
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....Exposure Limits of Authorised Dealers Category - I The Foreign Exchange Exposure Limits of Authorised Dealers would be dual in nature. • Net Overnight Open Position Limit (NOOPL) for calculation of capital charge on forex risk. • Limit for positions involving Rupee as one of the currencies (NOP-INR) for exchange rate management. For banks incorporated in India, the exposure limits fixed by the Board should be the aggregate for all branches including their overseas branches and Off-shore Banking Units. For foreign banks, the limits will cover only their branches in India. i. Net Overnight Open Position Limit (NOOPL) for calculation of capital charge on forex risk NOOPL may be fixed by the boards of the respective banks and communicated to the Reserve Bank immediately. However, such limits should not exceed 25 percent of the total capital (Tier I and Tier II capital) of the bank. The Net Open position may be calculated as per the method given below: 1. Calculation of the Net Open Position in a Single Currency The open position must first be measured separately for each foreign currency. The open position in a currency is the sum of (a) t....
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....e: Authorised Dealer banks should report all derivative transactions including forward exchange contracts on the basis of PV adjustment for the purpose of calculation of the net open position. Authorised Dealer banks may select their own yield curve for the purpose of PV adjustments. The banks however should have an internal policy approved by its ALCO regarding the yield curve/(s) to be used and apply it on a consistent basis. 3. Offshore exposures For banks with overseas presence, the offshore exposures should be calculated on a standalone basis as per the above method and should not be netted with onshore exposures. The aggregate limit (on-shore + off-shore) may be termed Net Overnight open Position (NOOP) and will be subjected to capital charge. Accumulated surplus of foreign branches need not be reckoned for calculation of open position. An illustrative example is as follows: If a bank has, let us say three foreign branches and the three branches have open position as below- Branch A: + Rs. 15 crores Branch B: + Rs. 5 crores Branch C: - Rs. 12 crores The open position for the overseas branches taken together would be Rs. 20 crores. 4. Capital Requiremen....
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....porting of Forex Turnover Data - FTD and GPB The guidelines and formats for preparation of the FTD and GPB reports are given below. AD Category-I banks may ensure that the reports are properly compiled on the basis of these guidelines: The data for a particular date has to reach us by the close of business of the following working day. FTD 1. SPOT - Cash and tom transactions are to be included under 'Spot' transactions. 2. SWAP - Only foreign exchange swaps between authorised dealers category-I should be reported under swap transactions. Long term swaps (both cross currency and foreign currency-Rupee swaps) should not be included in this report. Swap transactions should be reported only once and should not be included under either the 'spot' or 'forward' transactions. Buy/Sell swaps should be included in the 'Purchase' side under 'Swaps' while Sell/buy swaps should figure on the 'Sale' side. 3. Cancellation of forwards - The amount required to be reported under cancellation of forward contracts against purchases from merchants should be the aggregate of cancelled forward merchant sale contracts by authorised dealers category-I (adding to the supply in the market). On....
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.... >VI months Annex III [see Part D, paragraph (ii)] Statement of Nostro/Vostro Balances for the month of Name & address of the Authorised Dealer Category-I bank........ Sr. No. Currency Net balance in Nostro Account Net balance in Vostro Account. 1 USD 2 EUR 3 JPY 4 GBP 5 INR 6 Other currencies (in US $ million) Note: In case the variation in each item above (given at 1 to 5) exceeds 10% in a month, the reason may be given briefly, as a footnote. This statement should be addressed to The Director, Division of International Finance, Department of Economic Analysis and Policy, Reserve Bank of India, Central Office Building, 8th Floor, Mumbai- 400 001. Phone: 022- 2266 3791. Fax- 022 2262 2993, 2266 0792. Annex IV [see Part D, paragraph (iii)] Cross- currency derivative transactions - statement for the half-year ended.... Product No. of transactions Notional principal amount in USD Intere....
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.... Notes: a. Export Bills purchased /discounted/negotiated not to be included b. L/Cs established/bills under LCs to be retired/ outstanding import collection bills to be included c. Data to be submitted based on banks' books and not based on corporate's return d. Short term Finance to include Trade Credit (Buyers credit/ supplier's credit) approved by the Bank /PCFC e. Non trade exposures to include ECBs, FCCB cases handled by the bank/ FCNR (B) loans etc. f. Corporate wise data where the exposures or the hedges undertaken are above USD 25 million or equivalent shall be reported. g. All hedges with rupee as one of the legs shall be reported h. In the case of option structures, the trade with highest notional amount shall be reported. i. Corporate wise data where the eligible limits computed as per RBI guidelines are above USD 25 Million or equivalent shall be reported, in Part B j. Under amounts hedged in Part B report the cumulative total of the hedges booked during the f....
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....ad of the Company] To, (Name and address of the Bank) Dear Sir, Sub: Declaration for utilisation of past performance limits in excess of 50 per cent and details of import / export turnover, overdues, etc. • The value of the outstanding forward cover availed by us under the past performance route as on [date] is [ ] per cent of our eligibility for our imports [exports]. • We certify that all guidelines in respect of hedging of probable exposures under the past performance route have been complied with while utilizing this facility. • We declare that the information in the table below is true to the best of our knowledge and is provided in support of our application to hedge our currency risk under the past performance route using permitted foreign exchange derivative contracts in terms of Regulations and Guidelines issued under FEMA, 1999 (Act 42 of 1999). (Amount in USD million) Financial Year (April-March) Turnover Percentage of overdue bills to turnover Existing limit for booking of forward cover based on past performance Export Import Export Import Export Import Year 1 ....
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....sp; This report should be prepared for a range of 150 paise around current spot level. Cumulative positions to be given. All amounts in USD million. When the bank owns an option, the amount should be shown as positive. When the bank has sold an option, the amount should be shown as negative. All reports may be sent via e-mail by market-makers. Reports may be prepared as of every Friday and sent by the following Monday. Annex IX [See Part C, paragraph 5 (a)] Overseas foreign currency borrowings -Report as on ........... Amount (in equivalent USD* Million) Bank (SWIFT code) Unimpaired Tier-I capital as at the close of previous quarter. Borrowings in terms of PartC para 5 (a) of Master Circular on Risk Mgmt. and Inter-Bank Dealings dated July 1, 2009 Borrowings in excess of the above limit for replenishment. Of Rupee resources @ External Commercial Borrowings Borrowings under following scheme as per IECD Master Circular on Export Credit in Foreign Currency dated July 1, 2003 & Regulation 4.2(iv) of Notification No. FEMA 3/2000-RB dated May 3, 2000 (a) Lines ....
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....urnover in a year, together with expected peak positions thereof and the basis of calculation. along with a copy of the Board Risk Management Policy approved by its Management covering; • risk identification • risk measurements • guidelines and procedures to be followed with respect to revaluation and/or monitoring of positions • names and designations of officials authorized to undertake transactions and limits 4. Authorised Dealers may refuse to undertake any hedge transaction if it has a doubt about the bonafides of the transaction or the corporate is not exposed to price risk. The conditions subject to which ADs would grant permission to hedge and the guidelines for monitoring of the transactions are given below. It is clarified that hedging the price risk on domestic sale/purchase transactions in the international exchanges/markets, even if the domestic price is linked to the international price of the commodity, is not permitted, except certain specified transactions as approved/may be approved by the Reserve Bank. Necessary advice may be given to the customers before they start their hedging activity. 5. AD Banks m....
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....irm to the Authorised Dealer Category I. The certificate should confirm that the prescribed terms and conditions have been complied with and that the corporate/firm's internal controls are satisfactory. These certificates may be kept on record for internal audit/inspection. B. Hedging of commodity price risk on petroleum & petroleum Products by domestic crude oil refining companies 1. The hedging has to be undertaken only through AD Category I banks, subject to conditions and guidelines as also given in (a) and (b) of this Annex. 2. While extending the above hedging facilities, AD Category I banks should ensure that the domestic crude oil refining companies hedging their exposures should comply with the following: • to have Board approved policies which define the overall framework within which derivatives activities are undertaken and the risks contained; • sanction of the company's Board has been obtained for the specific activity and also for dealing in OTC markets; • the Board approval must include explicitly the mark-to-market policy, the counterparties permitted for OTC derivatives, etc.; and • domestic crude oi....
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....ontracts Cancelled Total forward cover outstanding During the month Cumulative Total - Year to Date During the month Cumulative total - Year to date Part B - Details of transactions permitted to be cancelled and rebooked Name of FII Market Value as determined at start of year (USD Million) Eligibility for Forward cover Forward Contracts Booked Forward Contracts Cancelled Total forward cover outstanding During the month Cumulative Total - Year to Date During the month Cumulative total - Year to date Name of the AD Category - I bank: Signature of the Authorised official: Date &n....
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....ance sheet or unlisted companies with a minimum net worth of Rs. 200 crore provided • All such products are fair valued on each reporting date; • The companies follow the Accounting Standards notified under section 211 of the Companies Act, 1956 and other applicable Guidance of the Institute of Chartered Accountants of India (ICAI) for such products/ contracts as also the principle of prudence which requires recognition of expected losses and non-recognition of unrealized gains; • Disclosures are made in the financial statements as prescribed in ICAI press release dated 2nd December 2005; and • The companies have a risk management policy with a specific clause in the policy that allows using the type/s of cost reduction structures. (Note: The above accounting treatment is a transitional arrangement till AS 30 / 32 or equivalent standards are notified.)" Operational Guidelines, Terms and Conditions Writing of options by the users, on a standalone basis is not permitted. Users can however, write options as part of cost reduction structures, provided, there is no net receipt of premium. • Leveraged structures....
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....the AD Cat I bank Appendix List of Circulars/Notifications which have been consolidated in the Master Circular on Risk Management and Inter-Bank Dealings Sr. No. Notification / Circular Date 1. Notification No. FEMA 25/2000-RB May 3, 2000 2. Notification No. FEMA 28/2000-RB September 5, 2000 3. Notification No. FEMA 54/2002-RB March 5, 2002 4. Notification No. FEMA 66/2002-RB July 27, 2002 5. Notification No. FEMA 70/2002-RB August 26, 2002 6. Notification No. FEMA 81/2003-RB January 8, 2003 7. Notification No. FEMA 101/2003-RB October 3, 2003 8. Notification No. FEMA 104/2003-RB October 21, 2003 9. Notification No. FEMA 105/2003-RB October 21, 2003 10. Notification No. FEMA 127/2005-RB January 5, 2005 11. Notification No. FEMA 143/2005-RB December 19, 2005 12. Notification No. FEMA 147/2006-RB March 16, 2006 13. Notification No. FEMA 148/2006-RB March 16, 2006 14. Notification No. FEMA 159/2007-RB September 17, 2007 15. Notification No. FEMA 177/2008-RB August 1, 2008 ....
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....(DIR Series) Circular No.27 January 19, 2010 33 A.P.(DIR Series) Circular No.05 July 30, 2010 34 A.P.(DIR Series) Circular No.32 December 28, 2010 35 A.P.(DIR Series) Circular No.60 May 16, 2011 36 A.P.(DIR Series) Circular No.67 May 20, 2011 37 A.P.(DIR Series) Circular No.68 May 20, 2011 38 A.P.(DIR Series) Circular No.3 July 21, 2011 39 A.P.(DIR Series) Circular No.50 November 23, 2011 40 A.P.(DIR Series) Circular No.58 December 15, 2011 41 A.P.(DIR Series) Circular No.63 December 29, 2011 42 A.P.(DIR Series) Circular No.68 January 17, 2012 43 A.P.(DIR Series) Circular No.122 May 09, 2012 44 A.P.(DIR Series) Circular No.3 July 11, 2012 45 A.P.(DIR Series) Circular No.13 July 31, 2012 46 A.P.(DIR Series) Circular No.21 August 31, 2012 47 A.P.(DIR Series) Circular No.30 September 12, 2012 48 A.P.(DIR Series) Circular No.45 October 22, 2012 49 A.P.(DIR Series) Circular No.86 March 1, 2013 50 A.P. (DIR Series) Circular No.121 June 26, 2013 51 A.P. (DIR Series) Circular No.2 July 4, 2013 52 A.P. (DIR Series....