A.P. (DIR Series) (2002-2003) Circular No. 98, dated 29-4-2003
Attention
of Authorised Dealers is invited to A.P. (DIR Series) Circular No. 92 dated
April 4, 2003. It has been decided to enlarge the scope of forward contracts to
cover the following transactions.
1. Forward
contracts are currently not available for inflows on account of foreign
investments into India. It has now been decided to permit residents outside
India to enter into forward sale contracts with Authorised Dealers in India to
hedge the currency risk arising out of their proposed Foreign Direct Investment
in India. Such contracts may be allowed to be booked only after ensuring that
the overseas entities have completed all the necessary formalities and obtained
necessary approvals (wherever applicable) for the investment.
The
tenor of the contracts should not exceed six months beyond which permission of
the Reserve Bank would be required to continue with the contract. Forward
contracts, if cancelled, shall not be eligible to be rebooked for the same
inflows and exchange gains, if any, on cancellation shall not be passed on to
the overseas investor.
Transactions denominated in foreign currency and settled in Indian Rupees
2. Paragraph
A of Schedule I to Notification No. FEMA 25/RB-2000 dated May 3, 2000 allows
residents in India to book forward contracts in respect of transactions for
which sale and/or purchase of foreign exchange is permitted under the Act or
rules or regulations, directions or orders made or issued there under.
Hitherto,
forward cover was not available in respect of transactions denominated in
foreign currency but settled in India Rupees. It has now been decided to permit
booking of forward contracts for hedging such transactions. These contracts
shall be held till maturity and cash settlement would be made on the maturity
date by cancellation of the contracts. Forward contracts covering such
transactions once cancelled, are not eligible for rebooking.
As
in the case of all forward contracts, Authorised Dealers may obtain a
declaration from their constituents while booking such contracts confirming
that the underlying exposure had not been hedged earlier.
Cross Currency Forward Contracts for balances in FCNR(B) Accounts
3. Paragraph
2(b) of Schedule II to Notification No. FEMA 25/RB-2000 dated May 3, 2000
permits a non‑resident Indian (NRI) or Overseas Corporate Bodies (OCBs)
to enter into forward contracts with rupee as one of the currencies to hedge the
balances held in Foreign Currency Non-Resident (FCNR) accounts.
In
order to facilitate better hedging opportunities to the holders of FCNR(B)
deposits, it has now been decided to allow deposit holders to book cross
currency (i.e., not involving the rupee) forward contracts to covert the
balances in one foreign currency to another foreign currency in which FCNR(B)
deposits are permitted to be maintained, at the option of the account holder.
Such contracts, once cancelled, are not eligible to be rebooked.
4. Necessary
amendments to the Foreign Exchange Management Regulations, 2000 are being
issued separately.
5. Authorised
Dealers may bring the contents of this circular to the notice of their
constituents concerned.
6. The
directions contained in this circular have been issued under section 10(4) and
section 11(1) of the foreign Exchange Management Act, 1999 (42 of 1999).