Rupee Contracts Hedging Allowed to NRIs
[RBI
Circular No. 03 dated 21st July 2011]
Sub: Facilitating Rupee
Trade – hedging facilities for non-resident entities
Attention of Authorized Dealers Category – I (AD
Category – I) banks is invited to the Foreign Exchange Management (Foreign
Exchange Derivative Contracts) Regulations, 2000 dated May 3, 2000 [Notification No.FEMA/25/RB-2000 dated
May 3, 2000], as amended from time to time.
2. In order to facilitate greater use of Indian Rupee in trade
transactions, as announced in the Monetary Policy Statement for the year
2011-12 (para 85), it has been decided to allow
non-resident importers and exporters to hedge their currency risk in respect of
exports from and imports to India, invoiced in Indian Rupees, with AD Category
I banks in India, as per details given in the Annex.
3. Necessary amendments to Notification No. FEMA.25/RB-2000 dated May
3, 2000 [Foreign Exchange Management (Foreign Exchange Derivatives Contracts)
Regulations, 2000] are being notified separately.
4. AD Category - I banks may bring the contents of this circular to
the notice of their constituents and customers.
5. The directions contained in this circular have been issued under
sections 10(4) and 11(1) of the Foreign Exchange Management Act 1999 (42 of
1999) and are without prejudice to permissions/approvals, if any, required
under any other law.
Rupee Trade – Hedging Facilities
for Non-Resident Entities
Purpose
To hedge the currency risk arising out of genuine
trade transactions involving exports from and imports to India, invoiced in
Indian Rupees, with AD Category I banks in India.
Products
Forward foreign exchange contracts with rupee as
one of the currencies and foreign currency-INR options.
Operational Guidelines, Terms and Conditions
The AD Category I banks can opt for either Model I
or Model II as given below:
Model I
Non-resident exporter / importer dealing through
their overseas bank (including overseas branches of AD banks in India)
·
Non-resident
exporter / importer approaches his banker overseas with appropriate documents
with a request for hedging their Rupee exposure arising out of a confirmed
import or export order invoiced in Rupees.
·
The overseas
bank in turn approaches its correspondent in India (i.e. the AD bank in India)
for a price to hedge the exposure of its customer along with documentation
furnished by the customer that will enable the AD bank in India to satisfy
itself that there is an underlying trade transaction (scanned copies would be
acceptable). The following undertakings also need to be taken from the
customer:
o That the same underlying exposure has not been
hedged with any other AD Category I bank/s in India.
o 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 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 suitable
documentation is to be provided by the overseas bank and the same procedure
followed as in case of the original contract.
Model II
Non-resident exporter / importer dealing directly
with the AD bank in India
·
The overseas
exporter / importer approaches the AD bank in India with a request for forward
cover in respect of underlying transaction for which he furnishes 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 trade
transaction, and details of his overseas banker, address etc. The following
undertakings also need to be taken from the customer
o That the same underlying exposure has not been
hedged with any other AD Category I bank/s in India.
o If the underlying exposure is cancelled, the
customer will cancel the hedge contract immediately.
·
The AD bank
may obtain certification of KYC/AML in the format appended to this Annex (Appendix
A). The format can be obtained through the overseas correspondent /
bank through SWIFT authenticated message. In case the AD bank has a presence
outside India, the AD may take care of the KYC/AML through its bank’s offshore
branch.
·
AD banks
should evolve appropriate arrangements to mitigate credit risk. Credit limits
can be granted based on the credit analysis done by self / the overseas branch.
·
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. 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.
Reporting
i. Authorised Dealers should consolidate the data on
the transactions undertaken by non-residents under the scheme and submit
quarterly reports as per the format indicated in the Appendix
‘B’.
ii.
Authorised
Dealers should report on a quarterly basis, doubtful transactions involving
frequent cancellation of hedge transactions and / or the underlying trade
transactions by non-residents under the scheme as per the format indicated in
the Appendix
‘C’.
The reports are to be sent to the Chief General
Manager, Reserve Bank of India, Foreign Exchange Department, Central Office, Forex Markets Division, Amar Building, Mumbai - 400 001.
Know Your Customer (KYC) Form in
respect of the non-resident exporter/importer
|
Registered Name of the non-resident
exporter/importer (Name, if the non-resident exporter/importer is an
Individual) |
|
|
Registration Number (Unique Identification Number*
in case non-resident exporter/importer is an Individual) |
|
|
Registered Address (Permanent Address if
non-resident exporter / importer is an Individual) |
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Name of the non-resident
exporter’s/importer’s Bank |
|
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Non-resident exporter’s / importer’s Bank Account
No. |
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Period of banking relationship with the
non-resident exporter/importer |
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* Passport No., Social Security No, or any Unique No. certifying the bonafides of the non-resident exporter/importer as
prevalent in the Non-resident exporter’s/ importer’s country
We confirm that all the information furnished above
is true and accurate as provided by the overseas remitting bank of the
non-resident exporter/importer.
(Signature of the Authorised
Official of the AD bank)
Date :
Place:
Stamp :
Reporting of Derivative
transactions undertaken by non-resident importer / exporter – for the
quarter ended
Name of the AD Category I Bank –
|
No. of non-resident importers / exporters
availing the facility. |
Total amount of derivative transactions
undertaken (INR crores) |
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Importers |
Exporters |
Forwards |
FCY-INR options |
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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 |
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