What changed
This 2011 master circular consolidated all prior instructions on risk management and inter-bank foreign exchange dealings into a single document. It introduced a sunset clause, meaning the circular would expire on July 1, 2012, and be replaced by an updated version. Key operational guidelines for forward contracts were reiterated, including a 15-day window for submitting underlying documents and restrictions on passing exchange gains if documents are late.
What it means for you
Banks must ensure strict adherence to the 15-day document submission rule for forward contracts, as repeated non-compliance (more than three times in a financial year) will require upfront document production. The sunset clause signals RBI's intent to regularly update these guidelines, so banks should stay alert for the 2012 replacement circular. This consolidation simplifies compliance by having all rules in one place.
What you must do
- Verify underlying exposure documents for all forward contracts within 15 days of booking.
- Cancel contracts and withhold exchange gains if documents are not submitted within 15 days.
- Track customer compliance: after three late submissions in a financial year, require documents upfront for future contracts.
- Prepare for the sunset clause: review and update internal policies before July 1, 2012, when this circular expires.
- Ensure all derivative contracts are booked only against genuine underlying exposures as per FEMA provisions.
Who it affects
All Authorised Dealers Category I banks, Persons resident in India using forex derivatives for hedging, Non-resident banks with rupee accounts, Compliance and risk management teams in banks
What happens if a customer fails to submit underlying documents within 15 days?
The bank must cancel the forward contract and cannot pass on any exchange gain to the customer. If this happens more than three times in a financial year, future contracts require documents at the time of booking.
Does this circular still apply today?
No, this circular had a sunset clause and stood withdrawn on July 1, 2012. It was replaced by an updated master circular. Always refer to the latest RBI master circular on risk management and inter-bank dealings.
What is the purpose of consolidating these instructions?
To bring all existing rules on risk management, forex derivatives, hedging, and inter-bank dealings into one document for easier reference and compliance by banks.