TaxTMI 
TaxTMI 
Risk Management and Inter-Bank Dealings (Updated as on September 22, 2025)
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....e Derivative Contracts) Regulations, 2000 [Notification No. FEMA 25/RB-2000 dated May 3, 2000] and subsequent amendments thereto. Attention is also drawn to provisions in Notification No. FEMA 1/2000-RB, Notification No. FEMA.3(R)/2018-RB and subsequent amendments thereto. All of the above govern the Foreign Exchange Derivative Contracts, Overseas Commodity & Freight Hedging, Rupee Accounts of Non-Resident Banks and Inter-Bank Foreign Exchange Dealings etc. These Regulations are amended from time to time to incorporate the changes in the regulatory framework and published through amendment notifications. 2. Within the contours of the Regulations, the Reserve Bank issues directions to Authorised Persons under Section 11 of the Foreign Exchange Management Act (FEMA), 1999. These directions lay down the modalities as to how the foreign exchange business has to be conducted by the Authorised Persons with their customers / constituents with a view to implementing the regulations framed. Further, Reserve Bank of India, in public interest and / or to regulate the financial system of the country to its advantage, issues directions to agencies undertaking foreign exchange transactions un....
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....999 or any rules or regulations made thereunder, that are proposed to be entered into in future. (b) 'Contracted exposure' means currency risk arising on account of current or capital account transactions permissible under the FEMA, 1999 or any rules or regulations made thereunder, that have been entered into. Explanation for the purpose of (a) and (b): • The term 'exposure' shall also include exposures arising out of transactions between residents that are denominated in a foreign currency or are linked to a foreign currency or are linked to a benchmark denominated in foreign currency, but settled in INR; and • The term 'exposure' shall not include exposures arising from foreign exchange derivative and foreign currency interest rate derivative transactions undertaken for purposes other than hedging. (c) 'Currency risk' means the potential for loss on account of movement in exchange rates of INR against a foreign currency or on account of movement in exchange rates of one foreign currency against another or on account of movement of interest rate applicable to a foreign currency. (d) 'Deliverable foreign exch....
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....9; means an OTC foreign exchange derivative contract in which there is no delivery of the notional amount of the underlying currencies of the contract and which is cash-settled. (n) 'Over-the-counter (OTC) derivative' means a derivative (deliverable or non-deliverable) other than those which are traded on Recognised Stock Exchanges and shall include those traded on electronic trading platforms (ETPs). (o) 'Recognised clearing corporation' shall have the same meaning as assigned to it in Regulation 2(1)(p) of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 dated October 03, 2018, as amended from time to time. (p) 'Recognised stock exchange' shall have the same meaning as assigned to it in Regulation 2(1)(q) of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 dated October 03, 2018, as amended from time to time. (q) 'Turnover' shall have the same meaning as assigned to it in the Section 2(91) of the Companies Act, 2013. (r) 'User' shall mean any person as defined in the Section 2(u) of the FEMA, 1999 (42 of 1999), whether reside....
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....tion to get classified as a non-retail user subject to the condition that the user makes a request to an Authorised Dealer in this regard and the Authorised Dealer is satisfied that the user has the risk management capabilities suitable for classification as a non-retail user. 2.2 Products (i) Authorised Dealers may offer the following foreign exchange contracts, involving INR or otherwise, to users (both retail and non-retail): • foreign exchange cash; • foreign exchange tom; and • foreign exchange spot. Note: Money changing transactions are not in the scope of these Directions and shall be governed by the Master Direction - Money Changing Activities dated January 01, 2016, as amended from time to time, or any other rule, regulation or Direction issued in this regard. (ii) Authorised Dealers may offer the following foreign exchange derivative contracts, involving INR or otherwise, to retail users: • foreign exchange forward; • foreign exchange swap; • currency swap; • purchase of foreign exchange call option (European); • purchase of foreign exchange put option (Euro....
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....15/533.DBR.IBD.BC.14570/23.13.004/2014-15 dated April 1, 2015, as amended from time to time. Such transactions can also be offered to residents and non-residents by Standalone Primary Dealers authorised as Authorised Dealer Category - III. (vii) NDDCs involving INR offered to resident users shall be cash-settled in INR. Such derivatives offered to non-resident users shall be cash-settled in INR or any foreign currency. (viii) Foreign exchange derivative contracts not involving INR and foreign currency interest rate derivative contracts offered to resident users for purposes other than hedging shall be cash-settled in INR. Such derivatives offered to non-resident users for purposes other than hedging shall be cash-settled in INR or any foreign currency. 2.3 Purpose (i) Authorised Dealers may offer foreign exchange cash, tom and spot contracts, involving INR or otherwise, to users for permissible current or capital account transactions. (ii) Authorised Dealers may offer deliverable foreign exchange derivative contracts involving INR to users for the purpose of hedging. (iii) Authorised Dealer Category-I banks with an operating IFSC Banking Unit and Standalone Primar....
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....ovided that Authorised Dealers shall permit users to take position up to USD 100 million equivalent of notional value (outstanding at any point of time), across all Authorised Dealers, for hedging contracted exposure without the requirement to establish the existence of underlying exposure. Authorised Dealers shall inform users that while they are not required to establish the existence of underlying exposure, they must ensure the existence of a valid underlying contracted exposure which has not been hedged using any other derivative contract and should be in a position to establish the same, if required. (ii) Authorised Dealers shall allow users to freely cancel and rebook derivative contracts. However, net gains (gains over and above losses, if any) on derivative contracts booked to hedge an anticipated exposure shall be passed on to the eligible user only at the time of the cash flow of the anticipated transaction. In case of part delivery, net gains shall be transferred on a pro-rata basis. (iii) Authorised Dealers may, in exceptional cases, pass on the net gains, if any, on derivative contracts booked to hedge an anticipated exposure whose underlying cash flow has not ma....
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....No. FMRD.FMD.07/02.03.247/2021-22 dated September 16, 2021, as amended from time to time. (ix) Existing contracts booked under the provisions of the earlier Directions may be continued till the date of their expiry. 3. Directions for exchange traded currency derivatives 3.1 Recognised Stock Exchanges and Recognised Clearing Corporations shall not deal in or otherwise undertake the business relating to foreign exchange derivatives unless they hold an authorization issued by the Reserve Bank of India under Section 10(1) of the Foreign Exchange Management Act, 1999. 3.2 Products (i) Recognized Stock Exchanges may offer the following foreign exchange derivative contracts, involving INR or otherwise, to persons resident in India and persons resident outside India: • Foreign exchange future; • Foreign exchange call option (European); and • Foreign exchange put option (European). (ii) Permitted currency pairs: USD-INR, EUR-INR, GBP-INR, JPY-INR, EUR-USD, GBP-USD and USD-JPY. (iii) The underlying for the foreign exchange option shall be the spot rate of the corresponding currency pair. (iv) Tenor: Up to 12 months. 3.3 Purpos....
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.... the user may, at his discretion, continue with the derivative contract till its original maturity. No adjustment to the hedge is required to be made if, in the considered opinion of the Authorised Dealer, the change in exposure is not material; • Where the value of the exposure is not ascertainable with certainty, derivative contracts may be booked on the basis of reasonable estimates. Such estimates should be reviewed periodically to ensure compliance with (iv) and (v) above. (c) For users taking positions beyond the aforesaid limit of USD 100 million, Recognized Stock Exchanges shall provide information on day-end open positions as well as intra-day highest position of the users to the designated Authorised Dealer / Custodian. (d) Recognized Stock Exchanges shall ensure that the participants on exchanges are made adequately aware of the risks associated with exchange traded currency derivatives. (ii) Price / premium of exchange traded foreign exchange derivative contracts involving INR shall be quoted in INR. Price / premium of EUR-USD and GBP-USD cross currency contracts shall be quoted in USD and USD-JPY contract shall be quoted in JPY. (iii) Exchange ....
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....nance of foreign exchange market in India. SECTION II [Removed]^2 SECTION III Facilities for Authorised Dealers 1. Management of Assets-Liabilities Users - Authorised Dealers Purpose - Hedging of interest rate and currency risks of foreign exchange asset-liability portfolio Products - Interest Rate Swap, Interest Rate Cap/Collar, Currency Swap, Forward Rate Agreement. Authorised Dealers may also purchase call or put options to hedge their cross currency proprietary trading positions. Operational Guidelines, Terms and Conditions The use of these instruments is subject to the following conditions: • An appropriate policy in this regard is approved by the Top Management. • The value and maturity of the hedge should not exceed those of the underlying. • No 'stand alone' transactions can be initiated. If a hedge becomes naked, in part or full, owing to the contraction of the value of portfolio, it may be allowed to continue till the original maturity and should be marked to market at regular intervals. • The net cash flows arising out of these transactions are booked as income/ expenditure and reckoned tow....
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....Dealers in the exchange traded currency derivative (ETCD) market (a) Authorised Dealers may undertake trading in all permitted exchange traded currency derivatives within their Net Open Position Limit (NOPL) subject to limits stipulated by the exchanges (for the purpose of risk management and preserving market integrity) provided that any synthetic USD-INR position created using a combination of exchange traded FCY- INR and cross-currency contracts shall have to be within the position limit prescribed by the exchange for the USD-INR contract. (b) Authorised Dealers may 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(c) While participating in the ETCD market, AD Category-I banks shall comply with the Master Direction - Reserve Bank of India (Financial Services provided by Banks) Directions, 2016 dated May 26, 2016, as amended from time to time and Standalone Primary Dealers authorised as Authorised Dealer Catego....
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....as Markets (i) Inflows into foreign currency accounts arise primarily from client-related transactions, swap deals, deposits, borrowings, etc. Authorised Dealers 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) Authorised Dealers 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, Authorised Dealers' 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 ....
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....ulation Department, Reserve Bank of India, Central Office, 9th Floor, Central Office Building, Shahid Bhagat Singh Road, Fort, Mumbai - 400 001, 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....
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....ed August 23, 2016, as amended from time to time. b) If drawals in excess of the above limit are not adjusted within five days, a report, should be submitted to the Chief General Manager, Financial Markets Regulation Department, Reserve Bank of India, Central Office, 9th Floor, Central Office Building, Shahid Bhagat Singh Road, Fort, Mumbai - 400 001, 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. ^106. Customer and inter-bank transactions beyond onshore market hours Authorised dealers may undertake customer (persons resident in India and persons resident outside India) and inter-bank transactions beyond onshore market hours. Transactions with persons resident outside India, through their foreign branches and subsidiaries may also be undertaken beyond onshore market hours. PART-D [Removed]^11 PART E A. REPORTS TO THE RESERVE BANK i) The Head/Principal Office of each Authorised Dealer should submit daily statements of Foreign Exchange Turnover in Form FTD and Gaps, Position and Cash Balances in Form GPB through the Centralised Information Management System (CIM....
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....atives) should be reported in hourly batches within 30 minutes from completion of the hour. Such contracts executed 30 minutes prior to closure of CCIL's reporting platform for the day and subsequent to closure of CCIL's reporting platform for the day should be reported by 10 a.m of the following business day; (b) Inter-bank foreign exchange derivative contracts not involving INR (except currency swaps and structured derivatives) executed up to 5 p.m.on any given day should be reported by 05:30 p.m of that day. Such contracts executed after 5 p.m should be reported by 10 a.m of the following business day; (c) Inter-bank currency swaps, structured derivatives and foreign currency interest rate derivative contracts executed upto 5 p.m.on any given day should be reported before closure of CCIL's reporting platform for the day. Such contracts executed after 5 p.m should be reported by 10 a.m of the following business day; and (d) Foreign exchange derivative contracts and foreign currency interest rate derivative contracts executed with clients should be reported before 12 noon of the following business day. Note: For the purpose of (a) (b) and (c), structured de....
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.... foreign currency assets and the liabilities in the balance sheet. This should include all accrued income/expenses. b) Net Forward Position This represents the net of all amounts to be received less all amounts to be paid in the future as a result of foreign exchange transactions which have been concluded. These transactions, which are recorded as off-balance sheet items in the Authorised Dealers' books, would include: • spot transactions which are not yet settled; • forward transactions; • Guarantees and similar commitments denominated in foreign currencies which are certain to be called; • Net future income/expenses not yet accrued but already fully hedged (at the discretion of the reporting Authorised Dealer); • Net of amounts to be received/paid in respect of currency futures, and the principal on currency futures/swaps. c) Net Options Position The options position is the "delta-equivalent" spot currency position as reflected in the authorised dealer's options risk management system, and includes any delta hedges in place which have not already been included under 1(a) or 1(b) (i) and (ii) abov....
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....nternal Audit Committee of the Authorised Dealers should monitor the utilization of and adherence to the limits. ii. Authorised Dealers should also have a system in place to demonstrate, whenever required, the various components of the NOOP as prescribed in the guidelines for verification by Reserve Bank. iii. Transactions undertaken by Authorised Dealers till the end of business day may be computed for calculation of Foreign Exchange Exposure Limits. The transactions undertaken after the end of business day may be taken into the positions for the next day. The end of day time may be approved by the Authorised Dealers' Board. ii. Limit for positions involving Rupee as one of the currencies (NOP-INR) for exchange rate management • NOP-INR may be prescribed to Authorised Dealers at the discretion of the Reserve Bank of India depending on the market conditions. • The NOP-INR positions may be calculated by netting off the long & short onshore positions (as arrived at by the short hand method) plus the net INR positions of offshore branches. • Positions undertaken by Authorised Dealers in currency futures / options traded in exchanges ....
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....e market). On the sale side of cancelled forward contracts, aggregate of the cancelled forward purchase contracts should be indicated (adding to the demand in the market). 4 'FCY/FCY' transactions - Both the legs of the transactions should be reported in the respective columns. For example in a EUR/USD purchase contract, the EUR amount should be included in the purchase side while the USD amount should be included in the sale side. 5. Transactions with RBI should be included in inter-bank transactions. Transactions with financial institutions other than entities authorised to deal in foreign exchange should be included under merchant transactions. GPB 1. Foreign Currency Balances - Cash balances and investments in all foreign currencies should be converted into US dollars and reported under this head. 2. Net open exchange position- This should indicate the overall overnight net open exchange position of the Authorised Dealer in Rs. Crore. The net overnight open position should be calculated on the basis of the instructions given in Annex I. 3. Of the above FCY/INR- The amount to be reported is the position against the Rupee- i.e. the net overnight open exchange po....
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.... Finance to include Trade Credit (Buyers credit/ supplier's credit) approved by the AD /PCFC. e. Non-Trade exposures to include ECBs, FCCB cases handled by the AD/ FCNR (B) loans etc. f. All hedges with rupee as one of the legs shall be reported. g. In the case of option structures, the trade with highest notional amount shall be reported. h. User wise data where the exposures or the hedges (based on contracted or anticipated exposure) undertaken are above USD 25 million or equivalent shall be reported. j. In Part C, INR/FCY currency swaps based on Rupee Liability above USD 25 million equivalent shall be reported. Annex VI [Removed]^24 Annex VII [Removed]^25 Annex VIII [see Part E, paragraph (v)] FCY/Rupee Option transactions For the week ended__________________ A. Option Transaction Report Sr. no. Trade date Client/C-party Name Notional Option Call/Put Strike Maturity Premium Purpose*  ....
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....and Part C Para 5A (a) by SPDs 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 of Credit for extending Pre-Shipment Credit in Foreign Currency (PCFC) (b) Bankers Acceptance Facility (BAF) / Loan from overseas for extending Redisctg. Of Export Bills Abroad Scheme (EBR) A 1 2 3 4a 4b Subord. Debt in foreign currency for inclusion in Tier-II capital Any other category (please specify here in this cell) Total of (1+2+3+6) Total of (1+2+3+4+6) Borrowings under categories (1+2+3+6) expressed as a percentage of Tier-I capital / Applicable limit at A Borrowings under categories (1+2+3+4+6) expressed as a percentage of Tier-I capital / Appicable limit at A 5 6 7 8 9 10 Note:*1. RBI reference rate and New York closing rates on the date of report may be used for conversion purpose. @ 2. Facility since withdrawn vide para 4 of AP(DIR Ser....
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....ed date in the future (more than two business days later) at a rate agreed on the date of the contract. (g) 'Foreign exchange future' means an exchange traded foreign exchange derivative contract involving the exchange of two currencies on a specified date in the future (more than two business days later) at a rate agreed on the date of the contract, but does not include foreign exchange forward. (h) 'Foreign exchange put option (European)' means an OTC / exchange traded foreign exchange derivative contract that gives the buyer the right, but not the obligation, to sell an agreed amount of a certain currency for another currency at a specified exchange rate on a specified date in the future. (i) 'Foreign exchange put spread' means an OTC foreign exchange derivative contract involving simultaneous purchase and sale of equal number of OTC foreign exchange put options (European) of same expiry and different strike price. (j) 'Foreign exchange swap' means an OTC foreign exchange derivative contract involving the actual exchange of two currencies (principal amount only) on a specified date (the near leg) and a reverse exchange of the same two ....
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....same maturity and notional principal amount. Appendix I List of Notifications which have been consolidated in the Master Direction - 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 16. Notification No. FEMA 191/2009-RB ....
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.... 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) Circular No.63 December 29, 2011 42 A. P. (D....
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....tober 12, 2017 81 A. P. (DIR Series) Circular No. 11 November 9, 2017 82 A. P. (DIR Series) Circular No. 18 February 26, 2018 83 A. P. (DIR Series) Circular No. 15 January 6, 2020 84 A. P. (DIR Series) Circular No. 23 March 27, 2020 85 A. P. (DIR Series) Circular No. 29 April 07, 2020 86 A. P. (DIR Series) Circular No. 31 May 18, 2020 87 A. P. (DIR Series) Circular No. 05 June 06, 2023 88 A. P. (DIR Series) Circular No. 13 January 05, 2024 89 A. P. (DIR Series) Circular No. 04 May 03, 2024 90 A. P. (DIR Series) Circular No. 10 September 22, 2025 These circulars should be read in conjunction with FEMA, 1999 and the Rules/Regulations/ Directions/Orders/Notifications issued thereunder. Appendix II List of notifications superseded. (i) Currency Futures (Reserve Bank) Directions, 2008 (Notification No. FED.1/DG(SG)-2008 dated August 06, 2008) issued under RBIA, 1934; (ii) Currency Futures (Reserve Bank) (Amendment) Directions, 2010 (Notification No. FED.2/ED(HRK)-2010 dated January 19, 2010) issued under RBIA, 1934; (iii) Exchange Traded Currency Options (Reserve Bank) Directions,....