What changed
RBI extended hedging facilities to non-resident entities for trade transactions invoiced in Indian rupees. Previously, such hedging was not explicitly allowed for non-residents. The circular provides two operational models for AD Category I banks to offer these derivatives.
What it means for you
Banks can now offer forward contracts and foreign currency-INR options to non-resident counterparties for genuine rupee trade exposures, expanding their derivative business. This move supports the internationalisation of the rupee and reduces currency risk for foreign traders dealing in INR. Banks must ensure strict adherence to underlying documentation and KYC norms.
What you must do
- Update internal policies to offer hedging products to non-resident importers/exporters for rupee-invoiced trade.
- Implement either Model I (through overseas correspondent) or Model II as per Annex guidelines.
- Verify underlying trade documents and obtain customer undertakings on no double hedging and cancellation procedures.
- Ensure settlement via vostro/nostro accounts and comply with rollover and cancellation rules.
Who it affects
AD Category I banks, Non-resident importers and exporters, Overseas correspondent banks
What hedging products are allowed under this circular?
Forward foreign exchange contracts with rupee as one currency and foreign currency-INR options are permitted.
Can a non-resident entity directly approach an AD bank in India?
No, under Model I, the non-resident must approach their overseas bank, which then deals with the AD bank in India.
What happens if the underlying trade transaction is cancelled?
The hedge contract must be cancelled immediately, and gains can be passed to the customer only if they declare no rebooking or cancellation of underlying exposure.