MASTER CIRCULAR ON RISK MANAGEMENT AND INTER‑BANK DEALINGS
MASTER CIRCULAR NO. 2/2004‑05, DATED 1.7.2004, ISSUED BY FOREIGN EXCHANGE DEPARTMENT, RBI
Rupee
Accounts of Non‑Resident Banks, Inter ‑Bank Dealings, Foreign
Exchange derivative contracts, etc. are governed by the provisions in
Notification No. TEMA 1/2000‑RB, paragraph 4(2) of Notification No. FEMA
3/ RB‑2000 and Notification No. FEMA 25/RB‑2000 dated May 3, 2000
and subsequent amendments.
2. This Master Circular
consolidates the existing instructions on the subject of "Risk Management
and inter Bank Dealings" at one place. The list of underling
circulars/notifications is set out at Annex 1.
3. As recommended by the
Committee on Procedures and performance Audit on Public Services (CPPAPS) (Chairman:
Shri S.S. Tarapore) set up by the Reserve Bank, this Master Circular is being
issued with a sunset clause of one year. This circular will stand withdrawn on
July 1, 2005 and would be replaced by an updated Master Circular on the
subject.
LIST OF CIRCULARS WHICH HAVE BEEN CONSOLIDATED IN
THIS MASTER CIRCULAR ON RISK MANAGEMENT AND INTER-BANK DEALINGS
|
SI. No. |
Circular No. |
Date |
|
1. |
AP (DIR Series) Circular No. 92 |
April 4, 2003 |
|
2. |
AP (DIR Series) Circular No. 93 |
April 5. 2003 |
|
3. |
AP (DIR Series) Circular No. 98 |
April 29, 2003 |
|
4. |
EC.CO.FMD. No. 8/02.03,75/2002-03 |
February 4, 2003 |
|
5. |
EC.CO.FMD. No. 14/02.03.75/2002-03 |
May 9, 2003 |
|
6 1. |
AT (DIR Series) Circular No. 108 |
June 21, 2003 |
|
2. |
Master Circular No. 1 |
July 1, 2003 |
|
73. |
A.P. (DIR S nest Circular No. 28 |
October 17,2003 |
|
84. |
A.P (DIR Series) Circular No. 46 |
December 9, 2003 |
|
95, |
A.P.(DIR Series) Circular No. 47 |
December 12,2003 |
|
106. |
A.P. (DIR Series) Circular No. 81 |
March 24, 2004 |
|
117. |
Notification No. FEMA 10-5 /2000.RB |
October 21, 2003 |
RISK MANAGEMENT
Facilities for Residents other than
authorised dealers:
Forward
Contracts
At. A
person resident in India may enter into a forward contract with an authorised
dealer in India to hedge an exposure to exchange risk in respect of a
transaction for which sale and/or purchase of foreign exchange is permitted
under the Act, or rules or regulations or directions or orders made or issued
thereunder, subject to following terms and conditions
(a) the authorised dealer
through verification of documentary evidence is satisfied about the genuineness
of the underlying exposure, irrespective of the transaction being a current or
a capital account transaction. Full particulars of contract should be marked on
such documents under proper authentication and copies thereof retained fin
verification. However, authorised dealer s may allow importers arid exporters
to book forward contracts on the basis of a declaration of exposure subject to
the conditions mentioned in paragraph A 2 of this circular.
(b) the maturity of the hedge does not
exceed the maturity of the underlying transaction.
(c) the currency of hedge and tenor are
left to the choice of the customer.
(d) where the exact amount
of the underlying transaction is not ascertainable, the contract is booked on
the basis of a reasonable estimate.
(e) foreign currency
loans/bonds will be eligible for hedge only after final approval is accorded by
the Reserve Bank where such approval is necessary or loan identification number
is given by the Reserve Bank.
(f) Global Depository Receipts (GDRs) will be eligible for
hedge after the issue price has been finalised.
(g) balances in the
Exchange Earner's Foreign Currency (EEFC) accounts sold forward by the account
holders shall remain earmarked for delivery and such contracts shall not be
cancelled. They may, however, be rolled‑over.
(h) forward contracts
booked in respect of foreign currency exposures of residents falling due within
one year an d all court acts booked to cover export transactions in ay be
cancelled and rebook ed. This facility may be made available only, to customers
who submit details of exposure to authorised dealers as per the format
enclosed. (Annex VI). Forward contracts booked to cover exposures falling due
beyond one year, once cancelled, cannot be rebooked. Authorised Dealers may
continue to offer this facility without any restrictions in respect of export
transactions. All forward contracts ma~ be rolled over at on‑going market
rates.
(i) substitution of earn
acts for hedging trade transactions may be permitted by an authorised dealer on
being satisfied with the circumstances under which such substitution has become
necessary.
A2.
Authorised dealers may, also allow importers and exporters to book forward
contracts on the basis of a declaration of an exposure and based on past
performance subject to the following conditions:
a. The forward contracts
booked in the aggregate should not exceed the limits worked out on the basis of
the average of the previous three financial years (April to March/actual
import/export turnover or the previous year's car never, whichever is higher.
This is subject to the condition that at any point of time forward contracts so
booked and outstanding shall not exceed 50% of the eligible limit. Contracts
booked in excess of 2596 of the eligible limit will be on deliverable basis and
cannot be cancelled. These limits shall be computed separately for
import/export transactions.
b. Any forward contract
booked without producing documentary evidence will be marked off against this
limit.
c. Importers and exporters
should furnish a declaration to the authorised dealer regarding amounts booked
with other bank authorised dealers under this facility.
d An undertaking may be
taken from the customer to produce supporting documentary evidence before the
maturity of the forward contract.
e. Importers/exporters
desirous of availing outstanding limits higher than 50% may forward then
applications to the Chief General Manager, Reserve Bank of India, Foreign
Exchange Department, Totes Markets Division, Central Office, Mumbai-400 001
(Fax No. 22611427, e‑mail ecdcofmd@rbi.org.in) justifying the need for
higher limits. Details of the import/export turnover of the past three years,
delayed realisations/ payments during these years and existing limits, duly
authenticated by the authorised dealer, may also be furnished in the lot mat
given in Annex VII.
Note:
Limits specified in Para A.2 pertain to forward contracts booked on the basis
of declaration of an exposure. When forward contracts are booked by the
authorised dealer after verification of documentary evidence, these limits are
not applicable and such contracts may be booked up to the extent of the
underlying.
A3. A forward
contract cancelled with one authorised dealer can be rebooked with another
authorised dealer subject to the following conditions:
(a) the switch is warranted by competitive rates OR Offer, termination of banking
relationship with the authorised
dealer with whom the contract was originally booked, etc.
(b) the cancellation and rebooking are done
simultaneously on the maturity date of the contract.
(c) the respons6ility of
ensuring that the original contract has been cancelled rests with the
authorised dealer who undertakes rebooking of the corn act.
A4. Residents
having overseas direct investments (in equity and loan) are permitted to hedge the
exchange risk arising out of
such investments. Authorised dealers may enter into forward contracts with
residents for hedging such investments subject to verification of exposure.
Contracts covering overseas direct investments have to be completed by delivery
or rolled over on the due date and cannot be cancelled.
If a hedge
becomes naked in part or full owing to shrinking of the market value of the
foreign direct investment, the hedge may continue to the original maturity.
Roll overs on due date shall be permitted upto the extent of market value as on
that date.
A5.
Authorised Dealers may also enter into forward contracts with residents in
respect of transactions denominated in foreign currency but settled in Indian
Rupees. 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 to be
rebooked.
A6. (i)
Authorised dealers may enter into foreign currency‑rupee option contracts
with their customers on back to‑back basis. They are also permitted to
run an options book subject to prior approval from the Reserve Bank. All
guidelines applicable for forward contacts are applicable on rupee option
contracts also. Detailed guidelines and reporting requirements are given in
Annex VIII.
(ii) A person resident in India w ho has borrowed foreign exchange in accordance with the provisions of Foreign Exchange Management (Borrowing and Lending in Foreign Exchange) Regulations, 2000, may enter into an interest rate swap or Currency swap or Coupon Swap or Foreign Currency Option or Interest rate cap or collar (purchases,) or Forward Rate Agreement (FRA) contract with an authorised dealer in India or with a branch outside India of in authorised dealer or with an Off‑shore Banking Unit in India for hedging his loan exposure and unwinding from such hedges, provided that
§
the contract does not involve the rupee.
§
final approval has been accorded or loan identification
number issued by the Reserve Bank for borrowing in foreign currency,
§
the notional principal amount of the hedge does not exceed the
outstanding amount of the foreign currency loan.
§
the maturity of the hedge does not exceed the unexpired
maturity of the underlying loan.
These
contracts may be freely cancelled and rebooked.
(ii) A
person resident in India, who owes a foreign exchange or rupee liability, may
enter into a contract for foreign currency‑rupee swap with an authorised
dealer in India to hedge long term exposure under the following terms and
conditions:
§
No swap transactions involving upfront payment of rupees or
its equivalent in any form shall be undertaken.
§
Swap transactions may be undertaken by authorised dealers as
intermediaries by matching the requirements of corporate counter-parties.
§
While no limits are placed on the authorised dealers for
undertaking swaps to facilitate customers to hedge their foreign exchange
exposures, limits have been put in place for swap transactions facilitating
customers to assume a foreign exchange liability, thereby resulting in supply
in the market. While matched transactions maybe undertaken, a limit of USD 50
million is placed for net supply in the market on account of these swaps.
Positions arising out of cancellation of foreign currency to rupee swaps by
customers need not be reckoned within the cap.
§
With reference to the specified limits for swap transactions
facilitating customers to assume a foreign exchange liability, the limit will
be reinstated on account of cancellation/maturity of the swap and on
amortization, up to the amounts amortized.
§
In the case of swap structures where the premium is inbuilt
in to the cost, authorised dealers should ensure that such structures do not
result in increase in risk in any manner. Further, such structures should not
result In net receipt of premium by the customer.
§
The above transactions if cancelled, shall nut be rebooked
or re‑entered, by whatever name called.
Note:
i. Authorised dealers should not offer
leveraged swap structures to clients.
ii. Authorised dealers
should not allow the swap route to become a surrogate for forward contracts for
those who do not qualify for forward cover.
iii. A person resident in
India may enter into a cross currency option contract (not involving the rupee)
with an authorised dealer in India to hedge foreign exchange exposure arising
out of his trade:
Provided
that in respect of cost effective risk reduction strategies like range
forwards, ratio‑range forwards or any other variable by whatever name
called there shall not be any net inflow of premium. These transactions may be
freely booked and /or cancelled.
Cross
currency options Should be written on a fully covered back‑to‑back
basis. The cover transaction may be undertaken with a bank outside India, an
off‑shore banking unit situated in a Special Economic Zone or an
internationally recognized option exchange or another authorised dealer in
India.
Authonsed
dealers desirous of writing options, should obtain one time approval, before
undertaking the business, from the Chief General Manager, Foreign Exchange
Department, (Forex Markets Division), Reserve Bank of India, Central Office,
Mumbai‑400 001.
Explanation
The
contingent foreign exchange exposure arising out of submission of a tender hid
in foreign exchange is also eligible for hedging Under this Sub‑paragraph.
A7. (i)
Authorised dealers should ensure that the Board of Directors of the corporate
has drawn up a risk management policy laid down clear guidelines for concluding
the transactions and institutionalised the an arrangements for a periodical
review of operations and annual audit of transactions to verify compliance with
the regulations. The periodical review reports and annual audit reports should
be obtained from the concerned Corporate by the authorised dealers,
A8. (i) Residents in India, engaged in
import and export trade or as otherwise approved by Reserve Bank from time to
time, may hedge the price risk of all commodities in the international
commodity exchanges/markets. Applications for commodity hedging may be forwarded
to Reserve Bank for consideration through the International Banking Division of
an authorised dealer along with its recommendation giving the following
details:
1. A
brief description of the hedging strategy proposed; namely:-
(a) description of business activity and
nature of risk
(b) instruments proposed to be used for
hedging
(c) names of commodity
exchanges and brokers through whom risk is proposed to be hedged and credit
lines proposed to be availed. The name and address of the regulatory authority
in the country career tied may also be given
(d) size/average tenure of, exposure and/or total
turnover in a year, together with expected peak Positions thereof and the basis
of calculation.
2. Copy of the Risk Management Policy
approved by the Management covering:
(a) risk identification
(b) risk measurements
(c) guidelines and
procedures to be followed with respect to revaluation and/or monitoring of
positions
(d) names and
designations of officials authorised to undertake transactions and limits.
3. Any
other relevant information.
A one‑time
approval will be given by Reserve Bank along with the guidelines for
undertaking this activity.
(ii) General permission has
been granted to entities in 'Special Economic Zones' to undertake hedging
transactions in the overseas commodity exchanges/markets to hedge then
commodity prices on export / import, subject to the condition that such
contract is entered into on a stand alone basis.
Note: The
term "stand alone" means the contra SEZ is completely isolated from
financial contacts with its parent or subsidiary in the mainland or within the
SEZs as far as its impost/export transactions are concerned.
Facilities for Foreign Institutional Investors (Flls)
A.9 (i)
Designated branches of authorised dealer s maintaining accounts of Fills may
provide forward cover with rupee as one of the currencies to such customers
subject to the following conditions
1. FIIs are allowed to
hedge the market value of their entire investment in equity and /or debt in
India as on a particular date. If a hedge becomes naked on part or full owing
to shrinking of the Porfolio, for reasons other than sale of securities, the
hedge may be allowed to continue to the original maturity, if so desired.
2. these forward
contracts, one cancelled cannot be be booked but may be rolled over on or
before maturity.
3. the cost of hedge is
met out of repatriable funds and/or inward remittance through normal banking
channel.
4. all
outward remittances incidental to the hedge are net of applicable taxes.
(i) The eligibility for
cover may be determined on the basis of the declaration of the FII. A review
may be undertaken on the basis of market price movements, fresh inflows,
amounts repatriated and other relevant parameters s to ensure that the forward
covet outstanding is supported by underlying exposure.
(iii) A monthly statement
should be furnished to the Chief General Manager, Reserve Bank of India,
Foreign Exchange Department (Forex Markets Division), Central Office, Mumbru‑400
001 before the 10th of the succeeding month indicating the name of the
Fll/fund, the eligible amount of covet, and the actual cover taken.
Facilities for Non‑Resident Indian
(NRls) and Overseas
Corporate Bodies (OCBs)
A10. Authorised dealers may enter into
forward contracts with NRIs/OCBs as per the following guidelines to hedge:
1. the amount of dividend due to him/it
on shares held in an Indian company.
2. the balances hold in
the Foreign Currency Non‑Resident External Rupee (FCNR) account or the
Non‑Resident External Rupee (NRF) account. Forward contract with the
rupee as one of the legs may be booked against balances in both the accounts.
With regard to balances in FCNR (B) accounts, cross currency (not involving the
rupee) forward contracts may also be booked to convert the balances in one
foreign currency to another foreign currency in which FCNR(B) deposits are
permitted to be maintained.
3. the amount of
investment made under portfolio scheme in accordance with the provisions of the
Foreign Exchange Regulation Act, 1973 or under notifications issued thereunder
or is made in accordance with the provisions of the Foreign Exchange Management
(Transfer or Issue of Security by a Person Resident outside India) Regulations,
2000 and in both cases subject to the terms and conditions specified in the
proviso to paragraph A98 above.
Facilities for hedging of Foreign Direct Investment In India.
A11. (i) Authorised Dealers may enter into forward contracts with residents outside India to hedge the investments made in India since January 1, 1993, subject to verification of the exposure in India.
(ii)
Residents outside India having foreign direct investment in India are also
permitted to enter into forward contracts with authorised dealers with rupee as
one of the currencies to hedge the currency risk on dividend receivable by them
on their investments in Indian
companies.
(iii)
Residents outside India may also enter into forward sale contracts with
authorised dealers 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. These contracts, if cancelled, shall not be eligible to be rebooked
fur the same inflows and exchange gains, if any, on cancellation shall not be
passed on to the overseas investor.
Note : All foreign exchange derivative
contracts permissible for a person resident outside India once cancelled, are
not eligible to be rebooked.
A12.
Authorised dealers may use the following instruments to hedge their assets‑liability portfolio:
Interest
rate swaps, Currency swaps, and Forward rate agreements.
Authorised
dealers may also purchase call or put options to hedge their cross currency
proprietary trading positions.
The use of these
instruments is subject to the following conditions
(a) An appropriate policy in this regard is
approved by their Top Management.
(b) The
value and maturity of the hedge should not exceed that of the underlying.
(c) No 'stand alone'
transactions can be initiated. If a hedge
becomes naked in part or full owing to shrinking of the portfolio, it may
be allowed to continue till the original maturity and should be marked to
market at regular intervals.
(d) The net cash flows arising out of these transactions are booked as
income and expenditure and reckoned as exchange position wherever applicable.
A13. (i) Banks
authorised by Reserve Bank to operate the Gold Deposit Scheme may use exchange‑traded
and over‑the‑counter hedging products available overseas to manage
the price risk. However, while using products involving options, it may be ensured
that there is no net receipt of premium, either direct or implied. Banks, which
are allowed to enter into forward gold contracts in India in terms of the
guidelines issued by the Department of Banking Operations and Development
(Including the positions arising out of inter ‑bank gold deals) are also
allowed to cover their price risk by hedging abroad in the manner indicated
above.
(ii)
Authorised banks are permitted to enter into forward contracts with their
constituents (exporters of gold products, jewellery manufacturers, trading
houses, etc.) in respect of the underlying sale, purchase and loan transactions
in gold with them subject to the conditions specified by Reserve Bank.
A14. Foreign
banks may hedge the entire Tier I
Capital held by them in Indian books subject it) the following conditions:
(i) the forward contract
should be for tenors of one year or more and may be rolled over on maturity.
Rebooking of cancelled hedge will require prior approval of Reserve Bank.
(ii) the capital fund
should be available in India to meet local regulatory and CRAR requirements. Therefore, foreign currency funds
accruing out of hedging should not be parked in nostro accounts but should
remain swapped with banks in India it all times.
(iii) foreign banks are
permitted to hedge their tier 11
capital in the form of Head Office borrowing as subordinated debt, by keeping
it swapped into Indian rupees at all times in terms of our Department of
Banking Operations and Development (DBOD)'s circular No. IBS.BC.65/23,
10.015/2001‑02 dated February 14,2002
ACCOUNTS OF NON‑RESIDENT BANKS
B.1 (i)
Credit to the account of a non‑resident bank is a permitted method of
payment to non‑residents and is, therefore, subject to the regulations
applicable to transfers in foreign currency.
(ii) Debit
to the account of a non‑resident bank is in effect an inward remittance
in foreign currency.
B.2 (i)
Authorised dealers may pen/close rupee accounts mon4riterest bearing) in the
names of their overseas branches or correspondents without prior reference to
Reserve Bank. Opening of rupee accounts in the names of branches of Pakistani
banks operating outside Pakistan requires specific app, oval of Reserve Bank.
(ii) The
Head/Principal Office of each authorised dealer should furnish an up‑to‑date
list (in triplicate) of all its offices/branches, which are maintaining rupee
accounts of non‑resident banks as at the end of December every Year
giving their code numbers allotted by Reserve Bank. The list should he
submitted before 15th January of the following year to the Central Office of
Reserve Bank (Central Statistical Division). The offices/branches should be
classified according to area of jurisdiction of Reserve Bank Offices within
which they are situated.
B.3 (i)
Authorised dealers may freely purchase foreign currency from their overseas
correspondents/branches at on going market rates to lay down funds in their
accounts for meeting their bona fide
needs in India.
(ii)
Transactions in the accounts should be closely monitored to ensure that
overseas banks do not take a speculative view on the rupee. Any such instances
should be notified to the Reserve Bank.
Note: Forward
purchase or sale of foreign currencies against rupees for funding is
prohibited.
Offer of
two‑way quotes to non‑resident banks is also prohibited.
B.4 Transfer
of funds between the accounts of the same bank or different banks is freely
permitted.
B.5 Balances
held in rupee accounts of non‑resident banks may be freely converted into
foreign currency. All such transactions should be report corded in Form A2 and
the corresponding debit to the account should be in Form A3. under the relevant
R Returns.
B.6 In the
case of credit to accounts the paying banker should ensure that all Control
regulatory requirements are met and are correctly furnished in Form A1 /A2 as
the case may be.
B.7 Requests
for cancellation or refund of inward remittances may be complied with without
reference to Reserve Bank after satisfying themselves that the refunds are not
being made in cover of transactions of compensatory nature.
B.8 (i)
Authorised Dealers may permit their overseas branches /correspondents temporary
over drawals not exceeding Rs. 500 lakhs in aggregate for meeting normal
business requirements. This limit applies to the amount outstanding against all
overseas branches and correspondents in the books of all the branches of the
authorised dealer in India. This facility should not be used to postpone
funding of accounts. If overdrafts in excess of the above limit are not
adjusted with in five days are report should be Submitted to the Central Office
of Reserve Bank Totes Markets Division) within 15 days from the close of the
month, stating the reasons therefor. Such are report is not necessary if
arrangements exist for value dating.
(ii)
Authorised dealers wishing to extend any other credit facility in excess of (i)
above to overseas banks should seek prior approval from the Chief General
Manager, Reserve Bank of India, Foreign Exchange Department (Forex Markets
Division) Central Office, Mumbai.
B.9 Opening
of rupee accounts in the names of exchange houses for facilitating private
remittances into India requires approval of Reserve Bank. Remittances through
exchange houses for financing trade transactions are permitted upto Rs.
2,00.000 per transaction.
C.1 The Board
of Directors of authorised dealers should frame an appropriate policy and fix
suitable limits for various Treasury functions.
C.2 The
overnight open exchange position (vide Annex II) and the aggregate gap limits
are required to be approved by Reserve
Bank.
C.3 Subject to
compliance with the provisions of paragraphs CA and C.2, authorised dealers may
freely undertake foreign exchange transactions as under.
(a) With authorised dealers in India:
(i) Buying/Selling/Swapping foreign
currency against rupees or another foreign currency
(ii) Placing/Accepting deposits and
Borrowing/Lending in foreign currency.
(b) With banks overseas and Off‑shore
Banking Units in Special Economic Zones
(i) Buying/Selling/Swapping
foreign currency against another foreign currency to cover client transactions
or for adjustment of own position,
(ii) Initiating trading positions in the
overseas markets.
Note:
A. Funding of accounts of Non‑resident
banks ‑ refer to paragraph B.3
B: Form A2
need not be completed for sales in the inter‑bank market, but all such
transactions shall be reported to Reserve Bank in R Returns.
C.4 (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 Top
Management. 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 Reserve Bank.
(ii)
Authorised dealers arc free to undertake investments in over seas markets up to
the limits approved by their Board of Directors. 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 instrument of
any foreign state, bank's 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 exceed one year as on the date of
purchase.
(iii)
Authorised dealers may also invest the undeployed FCNR (B) funds in overseas
markets in long‑tem fixed income securities subject to the condition that
the maturity of the securities invested in do not exceed the maturity of the
underlying FCNR (B) deposits.
(iv)
Foreign currency funds representing surpluses in the NOSTRO accounts may be
utilised for:
(a) making loans to
resident constituents for meeting their foreign exchange requirements or for
the rupee working capital/capital expenditure needs subject to the
prudential/interest‑rate norms, credit discipline and credit monitoring
guidelines in force.
(b) extending credit
facilities to Indian wholly owned subsidiaries/joint ventures abroad in which
at least 51 % equity is held by a resident company, subject to the guidelines
issued by Reserve Bank (Department of Banking Operations & Development).
(v)
Authorised dealers may write off/transfer to unclaimed balances account,
Unrecognized debit/credit entries as per instructions issued by Department of
Banking Operations and Development, from time to time.
C.5 (i)
Authorised dealers may avail of loans /overdrafts from their Head Office,
overseas branches and correspondents up to 25%, of their unimpaired Tier I
capital or US$10 million or its equivalent, whichever is higher. The funds so
raised may be used for purposes other (ban lending in foreign currency to
constituents in India and repaid without reference to the Reserve Bank. As an
exception to this rule, authorised dealers are permitted to use borrowed funds
as also foreign currency funds received through swaps fm granting foreign
currency loans to exporters in terms of IECD Circular No. 12/04.02.02/2002‑03
dated January 31, 2003. The aforesaid limit applies to the aggregate amount
availed of by all the offices and branches in India from all their branches/cot
respondents abroad.
(ii) All
categories of overseas foreign currency borrowings of authorised dealers
including existing External Commercial Borrowings (except for borrowing at
(iii) below) and overdrafts in NOSTRO accounts (not adjusted within five days),
shall not exceed 25% of their unimpaired Tier I capital as at the close of the
previous quarter USD 10million (or its equivalent), whichever is higher. The
aforesaid limit applies to the aggregate amount availed of by all the offices
and branches in India from all then branches/correspondents abroad, If drawals
in excess of the limit are not adjusted within five days, a report should be
submitted to the Chief General Manager, Reserve Bank of India, Foreign Exchange
Department, Forex Markets Division, Amar Building, Fort, Mumbai‑400001
within 15 days from the close of the month in which the limit was exceeded.
Such airport is not necessary it arrangements exist for value dating. Any flesh
burrowing above this limit shall be made only with the prior approval of the
Reserve Bank. Applications fur fresh ECBs should be made as pet the current ECB
Policy.
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, authorised dealers are permitted to use borrowed funds
as also foreign currency funds even, through swaps fm granting foreign
currrency loans in terms of IECD Circular No. 12/04.02.02/2002‑03 dated
January 31, 2001
(iii) The
following borrowings would continue to be outside the limit of 25% of
unimpaired Teel capital or USD 10 million lot its equivalent), whichever is
higher
a. Overseas borrowings by
authorised dealers for the purpose of financing export credit subject to the
condition, prescribed in IECD Master Circular dated July 1, 2003 on Export
Credit in foreign currency.
b. Subordinated debt
placed by head offices of foreign banks with their branches in India as Tier II
capital,
(iv) Interest on
loans/overdrafts may be remitted (net of taxes) without the prior approval of
Reserve Bank.
C.6 (i) The
Head/Principal Office of each authorised dealer should submit to the Chief
General Manager, Foreign Exchange Department (Forex Markets Division), Reserve
Bank of India, Central Office, Mumbai-100001 daily statements of foreign
exchange turnover in Form ETD and Cups position and cash balances in For in GPB
as pet Annex III. These statements should be transmitted on‑line through
Wide Area Network (WAN).
(ii) The
Head/Principal office of each authorised dealer should submit a statement in
duplicate in Form BAL giving details of their holdings of all foreign
currencies on fortnight basis so as to reach the Regional Office of Reserve
Bank under whose jurisdiction the Head/Principal Office is situated within
seven calendar day, from the close of the repel ting Period to which it
relates.
(iii) The
Head/Principal Office of each authorised dealer should forward a statement of
Nostro/Vostr Account balances on a monthly basis in the format given in Annex
IV to the Director, Division of Intel national Finance, Department of Economic
Analysis, and Policy, Reserve Bank of India, Central Office Building, 5th
Floor, Fort, Mumbai‑400 001. The data may also be transmitted by fax or e‑mail
at the numbers/addresses given in the formal.
(iv)
Authorised dealers ma ' v consolidate the data on cross currency derivative
transactions undertaken by residents in terms of Paragraph A 5 above and submit
half‑yearly reports (June and December) to the Chief General Manager,
Foreign Exchange Department, (Forex Markets Division), Reserve Bank of India, Central Office, Mumbai‑400 001 as per the format indicated
in the Annex V.
(v) Authorised dealers may forward details of exposures in
foreign exchange as on 1st April ever year as per the lot mat indicated in
Annex VI to the Chief Genet al Manager, Foreign Exchange Department, (pores
Markets Division), Reserve Bank of India, Central Office, Mumbai‑400 001.
(vi) Authorised dealers have to report
their total outstanding foreign currency borrowings under all categories as on
the list Friday of every month to the Chief General Manager, Foreign Exchange
Department (Forex Markets Division), Amar Building, Central Office, Reserve
Bank of India, Mumbai‑400 001. As per the format appended in Annex IX.
The report should be received by the 10th of the following month.
(See paragraph C.2)
1. Coverage
For banks
incorporated in India, the exposure limits fixed by the Management should be
the aggregate for all branches including their overseas branches and Off‑shore
Banking Units. For foreign banks, the limits will cover only their branches in
India.
2. Capital
Capital
refers to Tier I capital as per instructions issued by Reserve Bank of India (Department of Banking Operations and
Development).
3. Calculation of the
Net Open Position in a Single Currency
The open
position must first be measured separately
for each foreign currency. The open position in a currency is the sum of
(a) the net spot position, (b) the net forward position and (c) the net options
position.
(a) Net
Spot Position
The net
spot position is the difference between 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 bank's books, would include:
(i) spot transactions which are not yet
settled;
(ii) forward transactions;
(iii) guarantees and
similar commitments denominated in foreign currencies which are certain to be
called;
(iv) net of amounts to be received/paid in
respect of currency futures, and the principal on currency futures/swaps.
(c) 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
3(a) or 3(b)(i) and (ii).
4. Calculation of the
Overall Net Open Position
This
involves measurement of risks inherent in a bank's mix of long and short
position in different currencies. It has been decided to adopt the
"shorthand method" which is accepted internationally for arriving at
the over all net open position. Banks may, therefore, calculate the overall net
open position as follows:
(i) Calculate the net open position in each
currency (paragraph 3 above).
(ii) Calculate the net open position in gold.
(iii) Convert the net
position in various currencies and gold into rupees in terms of existing
RBI/FEDAI Guidelines.
(iv) Arrive at the sum of all the net short
positions.
(v) Arrive at the sum of all the net long
positions.
Overall net foreign exchange position is the higher of (iv) or (v). The overall net foreign exchange position arrived at as above must be kept within the limit approved by Reserve Bank.
5. Capital Requirement
As
prescribed by Reserve Bank from time to time
[see
paragraph C.6 (i)]
Statement
showing daily turnover of foreign exchange
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Merchant |
Inter-bank |
||||
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|
Spot, Cash, Ready, T.T.
etc. |
Forward |
Cancellation of Forwards |
Spot |
Swap |
Forwards, |
|
FCY/INR |
Purchase from |
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Sales to |
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FCY/FCY |
Purchase from |
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Sales to |
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US Dollars Balances : IN USD MILLION
(Cash Balance + All Investments)
Net Open Exchange Position (Rs.) : O/B
(+)/O/S (‑) IN RS. CRORE
Of the above FCY/INR : IN RS. CRORE
AGL maintained : VaR maintained:
|
1 month |
2 months |
3 months |
4 months |
5 months |
6 months |
>6
months |
[see paragraph C.6 (iii)]
Statement of Nostro/Vostro
Balances for the month of Name & address of the Authorised Dealer.
|
Sr. No. |
|
Currency |
Net balance in Nostro Account |
Net balance in Vostro Account |
|
I |
USD |
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2 |
EUR |
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3 |
JPY |
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4 |
GBP |
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5 |
Rupee |
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6 |
Other currencies (in US $ million,) |
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Note: In
case the variation in each item above (given at I to 5) exceeds
10% in a month, the reason may be given briefly, as a footnote.
The above statement should be
addressed to: The
Director
Division
of Inter national Finance
Department of
Economic Analysis & Policy
Reserve Bank of India,
Central Office
Building, 8th Floor,
Mumbai ‑ 400 00
1.
Phone:
022‑2266 3791
Fax: 022‑2262
2993, 2266 0792
e.mail:
rkpattnaik@rbi.org.in
brijeshp@rbi.org.in
[see
paragraph C.6 (iv)]
CROSS‑CURRENCY
DERIVATIVE TRANSACTIONS – STATEMENT
FOR THE
HALF‑YEAR ENDED...…..
|
Product |
No. of transaction |
Notional principal amount in USD |
|
Interest rate swaps |
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|
Currency swaps |
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Coupon swaps |
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|
Foreign currency option |
|
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|
Interest rate caps or collars (Purchases) |
|
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|
Forward rate agreement |
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Any other product as permitted by Reserve Bank from time to time |
|
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Name of the corporate:
|
|
Amount
in USD million equivalent |
Of col
(l) amounts already hedged |
|
|
(1) |
(2) |
|
(i) Import transactions due within the year |
|
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|
(ii) Non-trade payment falling due within one year |
|
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|
(iii) Non-trade payments falling due beyond one Near |
|
|
Note:
Authorised
dealers may consolidate the above data for the bank as a whole for individual
corporate and forward a report to Chief General Manager, Foreign Exchange
Department, Reserve Bank of India, Central Office, Forex Markets Division,
Mumbai‑400001 (caps to Chief General Manager, Department Or External
Investments and Operations, Reserve
Bank of India, Central Office,
Data Cell, Mumbai ‑400 001) before 30th June every year.
@ Calculated on the basis of last
three years' average, duly factoring in subsequent major changes, if any.
£ Based on actuals.
STATEMENT GIVING DETAILS OF IMPO /EXPORT TURNOVER,
OVERIJUES ETC.
Name of
the constituent: ………………………
(Amount in USD million)
|
Financial Year (April-March) |
Turnover |
Percentage of overdue bills to
turnovers |
Existing limit for booking of
forward cover based on past performance |
|||
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Export |
Import |
Export |
Import |
Export |
Import |
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2003-04 |
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2002-03 |
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2001-2002 |
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Authorised
dealers are permitted to offer foreign currency ‑ rupee options under the
following terms and conditions:
(a) This product may be
offered by authorised dealers having a minimum CRAR of 9 per cent, on a back‑to-back
basis.
(b) Authborised dealers having adequate internal control,
risk monitoring/management systems, mark to market mechanism and fulfilling the
following criteria will be allowed to run an option book after obtaining a one
time approval from the Reserve Bank
i. Continuous profitability for at least
three years
ii. Minimum CRAR of 9 per cent
iii. Net NPAs at reasonable levels (not more
than 5 percent of net advances)
iv. Minimum Net worth not less than Rs. 200 crore
(c) For the present, authorised dealers can offer only plain
vanilla European options.
(d) i. Customers can purchase call or put options.
ii. Customers can also enter into
packaged products involving cost reduction structures provided the structure does not increase the
underlying risk and does not involve customers receiving premium.
iii.
Writing of options by customers is not permitted.
(e) Authorised dealers
shall obtain an undertaking from customer s interested in using the product
that they have clearly understood the nature of the product and its inherent
risks.
(f) Authorised dealers may
quote the option premium in Rupees or as a percentage of the Rupee/foreign
currency notional.
(g) Option contracts may be
settled on maturity either by delivery on spot basis or by net cash settlement
in Rupees on spot basis as specified in the contract. In case of unwinding of a
transaction prior to maturity, the court act max he cash settled based on the
market value of an identical offsetting option.
(h) All the conditions
applicable for booking rolling over and cancellation of forward contracts would
be applicable to option contracts also. The limit available for booking of
forward contracts on past performance basis would be inclusive of option
transactions. Higher limits will be permitted on a case by‑case basis on
application to the Reserve Bank as in the case of forward contracts.
(i) Only one hedge
transaction can be booked against a particular exposure/part thereof for a
given time period.
(j) Option contracts
cannot be used to hedge contingent or derived
exposures (except exposures arising out of submission of tender bids in
Foreign exchange).
2. Users
(a) Customers who have
genuine foreign currency exposures in accordance with Schedules I and II of
Notification No. FEMA 25 /2000‑RB dated May 3. 2000 as amended from time
to time are eligible to enter into option contacts.
(b) Authorised dealers can
use the product for the purpose of hedging trading books and balance sheet
exposures.
3. Risk Management and
Regulatory Issues
(a) Authorised dealers
wishing to run an option book and act as market makers may apply to file Chief
General Manager, Reset x e Bank of India, Foreign Exchange Department, Furex
Markets Division, Central Office, Fort, Mumbai-400001 with a copy of the
approval of the Competent Authority (Board/Risk Committee /ALCO) and a copy of
the detailed memorandum put up in this regal d. Authorised dealers who wish to
use the product on a back‑to‑back basis may keep the above Division
informed in this regard.
(b) Market makers would be
allowed to hedge the 'Delta' of their option portfolio by accessing the spot
markets. Other 'Greeks' may be hedged by entering into option transactions in
the inter ‑bank market. The 'Delta' of the option contract would form
part of the overnight open position. As regards inclusion of option contracts
for the purpose of 'AGL', the' delta equivalent" as at the end of each
maturity shall betaken into account. The residual maturity (life) of each
outstanding option contracts call be taken as the basis for the purpose of
grouping under various maturity buckets. (For definition of the various
'Greeks' relating to option contracts, please refer the report of the RBI
Technical Committee on foreign currency‑rupee options).
(c) For the present,
authoriscd dealers are expected to manage the option portfolio within the risk
management limits already approved by the Reserve Bank,
(d) Authorihed dealers
running an option book are permitted to initiate plain vanilla cross currency
option positions to cover risks arising out of market making in foreign
currency ‑rupee options.
(e) Banks should put in
place necessary systems for marking to market the portfolio on a daily basis.
FEDAI will publish daily a matrix of polled implied volatility estimates, which
market participants can use for marking to market their portfolio.
4. Reporting
Authorised
dealers are required to report to the Reserve Bank on a weekly basis the transactions
undertaken as per the formats appended.
5.
Accounting
The
accounting framework fin option contracts will be as per FEDAI Circular No.SPL‑24/FC‑Rupee
Options/ 2003 dated May 29, 2003.
6.
Documentation
Market
participants may follow only ISDA documentation.
7.
Capital Requirements
Capital
requirements will be as per guidelines issued by our Department of Banking
Operations and Development (DBOD) from time to time.
8.
Banks should train their staff adequately and put in place necessary risk management
systems before they undertake option transactions. They should also take steps
to familiarise their constituents with the product.
Option
Transaction Report for the week ended
.................
|
Sr. No |
Trade date |
Client/ C-party Name |
Notional Call/put |
Option |
Strike |
Maturity |
Premium |
Purpose* |
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|
*Mention balance sheet, trading or
client related.
(USD
Million)
|
Bank (S WIFT Code) |
Unimpaired Tier-I capital as at the close previous quarter |
Borrowings in terms of Para C5 (i) of Master Circular on Risk Mgmt. and liner- Bank Dealings dated July
1, 2004 |
Borrowings in excess of the above limit for replenishment
of rupee resources (para C.5 (ii) 2) |
External Commercial Borrowings |
Borrowings under following scheme as per IECD Master 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 at A |
Borrowings under categories (1+2+3+4+6) expressed as a
percentage of Tier-I capital 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 Series) Circular No. 81 dated March 24,2004.