TaxTMI 
TaxTMI 
Master Circular on Risk Management and Inter-Bank Dealings
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.... Subramanian) Chief General Manager INDEX PART -A RISK MANAGEMENT SECTION I Facilities for Persons Resident in India other than Authorised Dealers Category-I..3 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....
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....e risk in respect of the market value of overseas direct investments (in equity and loan). i) 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. i) Forward foreign exchange contracts covering such transactions will be settled in cash on maturity. ii) These contracts once cancelled, are not eligible to be rebooked. iii) 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, Terms and Conditions General principles t....
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....porate 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 a) To hedge exchange rate risk arising out of trade transactions. b) To hedge the contingent foreign exchange exposure arising out of submission of a tender bid in foreign exchange. Operational Guidelines, Terms and Conditions a) AD Category I banks can only offer plain vanilla European options.^1 b) Customers can buy call or put options. c) These transactions may be freely booked and/ or cancelled subject to verification of the underlying. d) All guidelines applicable for cross currency forward contracts are applicable to cross currency option contracts also. e) Cross currency options should be written....
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....t 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 as at the end of each maturity shall be taken into account for the purpose of AGL. The residual maturity (life) of each outstanding option contract can be taken as the basis for the purpose of grouping und....
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....ly after the expiry of the tenor of the original swap contract that had been cancelled. This flexibility is not permitted for INR-FCY swaps. d) 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. e) The notional principal amount of the swap should not exceed the outstanding amount of the underlying loan. f) 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 a. All such products are fair valued on each reporting date; b. The companies follow the Accounting Standards notified under section 211 of th....
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....ipants Market-makers - a) AD Category I banks in India b) Branch outside India of an Indian bank authorized to deal in foreign exchange in India c) 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 a) The products, as detailed above should not involve the rupee under any circumstances. b) Final approval has been accorded or Loan Registration Number allotted by the Reserve Bank for borrowing in foreign currency. c) The notional principal amount of the product should not exceed the outstanding amount of the foreign currency loan. d) The maturity of the product should not exceed the unexpired maturity of the underlying loan. e) The contracts may be cancelled and rebooked freely. 2) Probable exposures based on past performance Participants Market-makers - AD Category I banks in India. Users - Importe....
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....ion 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 with the CFO. iii. For an exporter customer to be eligible for this facility, the aggregate of overdue bills shall not exceed 10 per cent of the turnove....
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.... book / cancel / / roll over forward contracts without production of underlying documents to manage their exposures effectively, subject to the following conditions: a) 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. b) 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. c) 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 Participants Market-makers - AD Category I banks Users: Resident Individuals, Firms and Companies Purpose To hedge their foreign exchange exposures ari....
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.... 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 any other AD bank. c) Derived foreign exchange exposures are not permitted to be hedged. However, in case of INR- foreign currency swaps, at the inception, the user can enter....
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....nu 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) website: 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 (INR), Euro (EUR)-INR, Japanese Yen (JPY)-INR and Pound Sterling (GBP)-INR. (ii) 'Persons resident in India' may purchase or sell currency futures contracts subject to the term....
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....reme 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 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. Exchange traded Curren....
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....ch 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 guidelines issued by the SEBI from time to time. Surveillance and disclosures The surveillance and disclosures of transactions, in the exchange traded currency options market, shall be carried out in accordance with the guidelines issued by the SEBI. Authorisation ....
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....acts 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 up to limit mentioned in paragraph (i) above. iv. For all other participants having an underlying foreign currency exposure in respect of both current and capital account transactions as also exporters and importers who wish to access the ETCD market on the basis of contracted exposure, they....
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....ubject 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 exchange to hedge price risk on import/ export in respect of any commodity (except gold, silver, platinum) in the international commodity exchanges/ markets. The guidelines are given in Annex XI (A & B). b. Hedging of anticipated imports of crude oil Participants Users: Domestic companies engaged in refini....
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.... 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 risk profile warrants - may use OTC contracts overseas. Operational Guidelines: a) The hedging will be allowed strictly on the basis of underlying contracts. b) AD Category I banks should retain necessary documentary evidence. c) All other conditions and guidelines as per Annex XI (A & B) should be complied....
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....e 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 banks, specifically authorized by the Reserve Bank i.e. those who 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. Purpose: To hedge freight risk. Products: Pl....
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....and capacity of these ships. The same may be certified by the statutory auditor and submitted 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. (iii) 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 (OTC) or exchange traded products in the international market / exchange. Operational Guidelines a) The maximum tenor permissible will be one year forward. b) The exchanges on which the products are purchased must be a regulated entity in the host country. c) Applications of companies/ firms which are not covered by the delegated authority of AD Category I may be forwarded to the Reserv....
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....te 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 FPI 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 clarified that in case an FPI intends to hedge the exposure of one of its sub-account holders, (cf paragraph 4 of schedule 2 to Notification No. FEMA 20 /2000-RB dated 3rd May 2000) it will be required to produce a clear mandate from the sub-account holder in respect of the latter's intention to enter into the derivative transaction. Further, the AD Category I banks shall have to verify the mandate as well as the eligibility of the contract vis-a-vis the market value of the securities held in the concerne....
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....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: a. FPIs will be allowed access to the currency futures or exchange traded currency options for the purpose of hedging the currency risk arising out of the market value of their exposure to Indian debt and equity securities. b. Such investors can participate in the currency futures / exchange traded options market through any registered / recognised trading member of the exchange concerned. c. FPIs can take position - both long( bought) as well as short(sold) - in USD-INR pair upto USD 15 million per exchange. In addition, they shall be allowed to take long as well as short positions in EUR-INR, GBP-INR and JPY-INR pairs, all put together, upto USD 5 million equivalent per exchange. ....
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....) 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 i) 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 ii) To hedge exchange rate risk on dividend receivable on the investments in Indian companies iii) To hedge exchange rate risk on proposed investment in India Products Forward foreign exchange contracts with rupee as one of the currencies and foreign currency-INR options. Operational Guidelines, Terms and Conditions a) In respect of contracts to hedge exchange rate risk on the market value of investments made in India, contracts once cancelled are not eligible to be rebooked. The contracts may, however, be rolled over. b) In respect of proposed foreign direct investments, following conditions would apply: (i) Contracts to hedge exchange rate risk arising out of proposed investment in Indian companies may be allowed to be booked o....
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....rward 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 Vostro or the AD bank's Nostro 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 suita....
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....nsaction 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 I) Purpose: To hedge the currency risk arising out of ECBs designated in INR either directly with AD Category- I banks in India or through their overseas banks on a back to back basis as per operational guidelines, terms and conditions given under (II) below Products Forward foreign exchange contracts with rupee as one of the currencies, foreign currency-INR options and foreign currency-INR swaps. Operational Guidelines, Terms and Conditions • The foreign equity holder / overseas organisation or individual approaches the AD bank in India with a request for forward cover in respect of underlying transaction for which he needs to furnish appropriate documentation (scanned copies would be acceptable), on a pre-deal basis to enable the AD bank in India to satisfy itself that there is an underlying ECB transaction, and details of his overs....
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....ct immediately. (iii) A KYC certification on the end client shall also be taken by the AD bank in India as a one-time document from the overseas bank. (iv) Based on the documents received from the overseas bank, the AD bank in India should satisfy itself about the existence of the underlying ECB in INR and offer an indicative swap rate to the overseas bank which, in turn, will offer the same to the non-resident lender on a back-to-back basis. (v) The continuation of the swap shall be subject to the existence of the underlying ECB at all times. (vi) On the due date, settlement may be done through the Vostro account of the overseas bank maintained with its correspondent bank in India. (vii) The concerned AD Cat-I bank shall keep on record all related documentation for verification by Reserve Bank. Operational Guidelines, Terms and Conditions The operational guidelines as outlined for FPIs would be applicable, with the exception of the provision relating to rebooking of cancelled contracts. All foreign exchange derivative contracts permissible for a resident outside India other than a FPI, once cancelled, are not eligible to be rebooked. SECTION III Faciliti....
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.... local regulatory and CRAR requirements and, hence, these should not be parked in nostro accounts. Foreign currency funds accruing out of hedging should not be parked in Nostro accounts but should remain swapped with banks in India at all times. ii) The forward contracts should be for tenors of one or more years and may be rolled over on maturity. Rebooking of cancelled hedges will require prior approval of the Reserve Bank. b) Tier II capital - • Foreign banks are permitted to hedge their Tier II capital in the form of Head Office borrowing as subordinated debt, by keeping it swapped into rupees at all times in terms of DBOD circular No.IBS.BC.65 /23.10.015/2001-02 dated February 14, 2002. • Banks are not permitted to enter into foreign currency-INR swap transactions involving conversion of fixed rate rupee liabilities in respect of Innovative Tier I/Tier II bonds into floating rate foreign currency liabilities. 4. Participation in the currency futures market in India Please refer to Part-A Section I, paragraph 4. In continuation of the same: a) AD Category I Banks may be guided by the DBOD instructions vide DBOD.No.FSD.BC. 29 /24.01.001/20....
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....A should not exceed 3 per cent. iv. Made net profit for last 3 years. The 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. b) 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. c) The AD Category - I banks shall operate within prudential limits, such as Net Open Position (NOP) and Aggregate Gap (AG) limits. The option position of the banks, on their own account, in the exchange traded currency options shall form part of their NOP and AG limits PART B ACCOUNTS OF NON-RESIDENT BANKS 1. General (i) Credit to the account of a non-resident bank is a permitted method of payment to non-residents and is, therefore, subject to the regulations applicable to transfers in foreign currency. (ii)....
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....e authorised AD Category I bank in India. This facility should not be used to postpone funding of accounts. If overdrafts in excess of the above limit are not adjusted within five days a report should be submitted to the Reserve Bank of India, Financial Markets Regulation Department, Central Office, Mumbai 400001 within 15 days from the close of the month, stating the reasons thereof. Such a report is not necessary if arrangements exist for value dating. (ii) AD Category I bank wishing to extend any other credit facility in excess of (i) above to overseas banks should seek prior approval from the Chief General Manager, Reserve Bank of India, Financial Markets Regulation Department, Central Office, 23rd Floor, Mumbai, 400001. 9. Rupee Accounts of Exchange Houses Opening of Rupee accounts in the names of Exchange Houses for facilitating private remittances into India requires approval of the Reserve Bank. Remittances through Exchange Houses for financing trade transactions are permitted upto Rs. 15,00,000 per transaction.^5 PART C INTER-BANK FOREIGN EXCHANGE DEALINGS 1. General The Board of Directors of AD Category I banks should frame an appropriate policy and f....
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....e life to maturity does not exceed one year as on the date of purchase. (iii) AD Category I banks may also invest the un-deployed FCNR (B) funds in overseas markets in long-term fixed income securities subject to the condition that the maturity of the securities invested in do not exceed the maturity of the underlying FCNR (B) deposits. (iv) Foreign currency funds representing surpluses in the nostro accounts may be utilised for: a) making loans to resident constituents for meeting their foreign exchange requirements or for the Rupee working capital/capital expenditure needs of exporters/ corporates who have a natural hedge or a risk management policy for managing the exchange risk subject to the prudential/interest-rate norms, credit discipline and credit monitoring guidelines in force. b) extending credit facilities to Indian wholly owned subsidiaries/ joint ventures abroad in which at least 51 per cent equity is held by a resident company, subject to the guidelines issued by Reserve Bank (Department of Banking Regulation). (v) AD Category I banks may write-off/transfer to unclaimed balances account, un-reconciled debit/credit entries as per instructions issued by ....
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....urrency Export Credit & Customer Service To Exporters. ii).Subordinated debt placed by head offices of foreign banks with their branches in India as Tier II capital. iii) Capital funds raised/augmented by the issue of Innovative Perpetual Debt Instruments and Debt Capital Instruments, in foreign currency, in terms of Circulars DBOD. No. BP.BC.57/21.01.002/2005-06 dated January 25, 2006, DBOD. No. BP.BC.23/21.01.002/2006-07 dated July 21, 2006 and Perpetual Debt Instruments and Debt Capital Instruments in foreign currency issued in terms of circular DBOD.No.BP.BC.98/21.06.201/2011-12 dated May 2, 2012. iv) Any other overseas borrowing with the specific approval of the Reserve Bank. d) Interest on loans/overdrafts may be remitted (net of taxes) without the prior approval of Reserve Bank. e) ^6AD category-I banks may borrow only from International / Multilateral Financial Institutions in which Government of India is a shareholding member or which have been established by more than one government or have shareholding by more than one government and other international organizations. f) The borrowings beyond 50 per cent of unimpaired Tier I capital of AD Category - I b....
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....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. The report may also be forwarded by e-mail to [email protected] so as to reach the Department by the 10th of the following month. 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. The report may also be forwarded by e-mail to [email protected] so as to reach the Department by the 10th of the following month. vi) AD Category-I banks are required to submit a monthly report (as on the last Friday of every month) on the limits granted and utilized by their constituents under the facility of booking forward contracts on past performance basis, as per the format in Annex-X. The report may also be forwarded by e-mail to [email protected] so as to reach the Department by the 10th of the following month. vii) The Head/Principal Office of each AD Category-I banks should submit a statement in form BAL giving details of their holdings ....
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...., Central Office 23rd Floor, Mumbai - 400 001 unless otherwise specified. Reports may be sent preferably through e-mail to [email protected]. Annex I [See Part C, Paragraph 2] A. Guidelines for Foreign Exchange Exposure Limits of Authorised Dealers Category - I The Foreign Exchange Exposure Limits of Authorised Dealers would be dual in nature. i. Net Overnight Open Position Limit (NOOPL) for calculation of capital charge on forex risk. ii. 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 b....
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....ion is the higher of (iv) or (v). The overall net foreign exchange position arrived at as above must be kept within the limit approved by the bank's Board. Note: 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 Br....
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....mit should be clearly documented as an internal policy and strictly adhered to. Annex II [see Part D, paragraph (i)] Reporting 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 shou....
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.... I month II months III months IV months V months VI months >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.... Pr....
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....ion of past performance limits in excess of 50 per cent and details of import / export turnover, overdues, etc. 1. 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]. 2. 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. 3. 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 Year 2 ....
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.... 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 to [email protected]. 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 date....
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.... Reserve Bank retains the right to withdraw the permission granted to any bank, if considered necessary. 2. Before permitting corporates to undertake hedge transactions, authorized dealer would require them to submit a Board resolution indicating (i) that the Board understands the risks involved in these transactions, (ii) nature of hedge transactions that the corporate would undertake during the ensuing year, and (iii) the company would undertake hedge transaction only where it is exposed to price risk. 3. Before permitting unlisted companies to undertake hedge transactions in respect of price risk on import/ export of commodities, Authorized Dealer would require them to submit a brief description of the hedging strategy proposed, namely: • description of business activity and nature of risk, • instruments proposed to be used for hedging, • the names of the commodity exchanges and brokers through whom the risk is proposed to be hedged and the credit lines proposed to be availed. The name and address of the regulatory authority in the country concerned may also be given, • size / average tenure of e....
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....nnex XVII. Corporates/firms are allowed to cancel an option position with an opposite transaction with the same broker. 3. The corporate/firm should open a Special Account with the Authorised Dealer Category-I bank. All payments/receipts incidental to hedging may be effected by the Authorised Dealer Category-I through this account without further reference to the Reserve Bank. 4. A copy of the Broker's Month-end Report(s), duly confirmed/countersigned by the corporate's Financial Controller should be verified by the bank to ensure that all off-shore positions are/were backed by physical exposures. 5. The periodic statements submitted by Brokers, particularly those furnishing details of transactions booked and contracts closed out and the amount due/payable in settlement should be checked by the corporate/firm. Un-reconciled items should be followed up with the Broker and reconciliation completed within three months. 6. The corporate/firm should not undertake any arbitrage/speculative transactions. The responsibility of monitoring transactions in this regard will be that of the Authorised Dealer Category I. 7. An annual certificate from Statutory Auditors should be su....
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....d nature of risk, instruments proposed to be used for hedging, names of commodity exchanges and brokers through whom risk is proposed to be hedged and credit lines proposed to be availed. The name and address of the regulatory authority in the country concerned may also be given, size/average tenure of exposure and/or total turnover in a year, together with expected peak positions thereof and the basis of calculation. 2. A copy of the Board Risk Management Policy approved by the 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 3. Any other relevant information. A one-time approval will be given by Reserve Bank along with the guidelines for undertaking this activity. Annex XIII [see Part A ,Section II, paragraph 1] Statement - Details of Forward cover undertaken by FPI clients Month - Part A - Details of forward cover (without rebooking) outstanding Name of FPI Current Market Value (USD mio) Eligibility for Forward cover &nb....
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.... II. Details of the foreign exchange forward contracts required 1. Amount (Specify currency pair) .................................... 2. Tenor .......................................................... III. Notional value of forward contracts outstanding as on date .......... IV. Details of actual / anticipated remittances 1. Amount : 2. Remittance Schedule : 3. Purpose : Declaration I, ................... ............(Name of the applicant), hereby declare that the total amount of foreign exchange forward contracts booked with the --------------- (designated branch) of ------------------(bank) in India is within the limit of USD 250,000/- (US Dollar Two lakh and Fifty Thousand only) and certify that the forward contracts are meant for undertaking permitted current and / or capital account transactions. I also certify that I have not booked foreign exchange forward contracts with any other bank / branch. I have understood the risks inherent in booking of foreign exchange forward contracts. Signature of the applicant (Name) Place: Date: Certificate by the Authorised Dealer Category - I bank This is to certify that the customer....
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....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 a. All such products are fair valued on each reporting date; b. 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; c. Disclosures are made in the financial statements as prescribed in ICAI press release dated 2nd December 2005; and d. 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 b. Writing of options by the users, on a standalone basis is not permitted. Users can however, write options as part of cost reduction structures, provi....
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..../ exporters availing the facility. Total amount of derivative transactions undertaken (INR crores) Importers Exporters Forwards FCY-INR options Annex XX Reporting of suspicious transactions undertaken by non-resident importer / exporter - for the quarter ended . Name of the AD Category I Bank - Sl No Name of the non-resident exporter / importer Name of the overseas bank (in case of Model I) No. of derivative transactions cancelled along with cancellation of the underlying trade transaction and amount involved Action taken by 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 ....
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....) Circular No.32 February 8, 2007 22 A.P.(DIR Series) Circular No.52 May 08, 2007 23 A.P.(DIR Series) Circular No.66 May 31, 2007 24 A.P.(DIR Series) Circular No.76 June 19,2007 25 A.P.(DIR Series) Circular No.15 October 29 ,2007 26 A.P.(DIR Series) Circular No.17 November 6, 2007 27 A.P.(DIR Series) Circular No.47 June 3, 2008 28 A. P. (DIR Series) Circular No. 05 August 6, 2008 29 A.P.(DIR Series) Circular No.23 October 15, 2008 30 A. P. (DIR Series) Circular No.35 November 10, 2008 31 A.P.(DIR Series) Circular No.50 February 4, 2009 32 A.P.(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) Circul....
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....terms of A.P. (DIR Series) Circular No. 25 dated September 3, 2014 and A.P. (DIR Series) Circular No. 103 dated May 21, 2015 ^5 A. P. (DIR Series) Circular No. 102 May 21, 2015 ^6 A.P. (DIR Series) Circular No. 112 dated June 25, 2015 ^7 Capital refers to Tier I capital as per instructions issued by Reserve Bank of India (Department of Banking Operations and Development). ============= Document 1 Annex V [see Part D, paragraph (iv)] Information relating to exposures in foreign currency as on Information relating to exposures Foreign Currency as on. Name of the bank. A. Exposures and Hedges based on Underlying Transactions (USD Million) Exports Trade Related Imports Short Term Finance Outstanding Non-Trade C INR/FCY currency Information relating to exposures in Foreign Currency as on. Name of the bank swaps based on B. Exposures and Hedges based on Past Performance (USD Million) Exports Imports Sr. No. Name of Corporate Exposures Amount hedged Exposures Amount hedged Exposures Amount hedged Exposures Amount hedged Eligible limits Cum. Amount hedged Amount O/S Eligible limi....