IND RBI Hedging of Forex Risks

On Jan. 5, IND RBI published directions on the hedging of forex risk.

  • IND RBI published notification on risk management and inter-bank dealings - hedging of foreign exchange risk, following a review of forex risk management facilities.
  • Revised directions are provided at Annex-I and replace the existing directions in Part A (section I) of Master direction – risk management and interbank dealings, Jul. 5, 2016.
  • Follows IND RBI Jun. 2023 issued inter-bank dealings master direction, see #176337.
  • Exposure Limits
  • For exchange traded currency derivatives, the user can take positions (long or short), without establishing existence of underlying exposure, up to single limit of USD 100mn equivalent on all currency pairs involving INR, combined across all stock exchanges.
  • For OTC foreign exchange transactions ADs shall permit users to take position up to USD 100mn equivalent of notional value, across all ADs, for hedging contracted exposure without the requirement to establish the existence of underlying exposure.
  • Recognized stock exchanges, authorized dealers shall inform users that while they do not have to establish existence of underlying exposure, they must ensure existence of a valid underlying contracted exposure, not hedged with any other derivative contract.
  • Effectiveness
  • These directions come into effect from Apr. 5, 2024.
  • Apr. 2024 Postpone Effectiveness
  • On Apr. 4, 2024, IND RBI said the directions would come into effect from May 3, 2024 instead of Apr. 5, 2024, in view of feedback received and recent developments.
  • Clarified the regulatory framework for exchange traded currency derivatives (ETCDs) has remained consistent over the years and there is no change in its policy approach.

Regulators IND RBI
Entity Types B/D; Bank; Exch; OTC
Reference PR 2024-2025/32, 4/4/2024; Nt RBI/2023-24/108, 1/5/2024; MD RBI/FMRD/2016-17/31, 7/5/2016
Functions Actuarial and Valuation; Compliance; Operations; Reporting; Risk; Trading
Countries India
Products Banking; Derivatives; Forex; Futures; Payments
Regions AP
Rule Type Final
Rule Date 1/5/2024
Effective Date 5/3/2024
Rule Id 197253
Linked to Rule :176337
Reg. Last Update 4/4/2024
Report Section International

Last substantive update on 04/09/2024