RISK MANAGEMENT AND INTER BANK DEALINGS

GENERAL

• Exposure, whether capital or current, should be genuine
• Maturity of hedge not to exceed exposure maturity
• No restriction on hedge currency/ tenor
• Contract can be booked on estimated amount where exact exposure amount is unknown
• FC loans/ bonds can be covered only after they are approved by the RBI
• GDR can be hedged after issue price is finalized

CANCELLATION / REBOOKING FACILITY

Conditions:

The facility of cancellation and rebooking should not be permitted unless the corporate has submitted the required exposure information as on April 1 of the year.

Allowance:

Substitutions of contracts for hedging trade transactions allowed.

PAST PERFORMANCE FACILITY

Eligible Limit = Max of (average of last 3 financial years' imports/ exports, last year's imports/ exports)

Limit above to be computed separately for Imports, Exports

• Cover > 50% of limit needs CA certificate stating all guidelines have been adhered to, certificate of last 3 export / import turnover
• Cover > 75% of limit has to be on Deliverable basis

Requirements:

• Customers to notify ADs of amounts booked with other ADs under this facility
• Customers to produce supporting documentary evidence at time of premature cancellation of Forward Contract
• For Exporters, overdue bills should not exceed 10% of turnover
• There is a limit of USD 50 mln on swaps facilitating customers to assume a forex liability, thereby resulting in supply in the market.
• Positions arising out of cancellation of foreign currency to Rupee swaps do not fall in the cap above.
• When a swap (as limited above) is cancelled/ amortises, the cap (as specified above) the cap will be reinstated to the extent of the amount cancelled/ amortised.
• No rebooking allowed, if cancelled.

CHANGE OF BANK

Cancelled Fwd Contract can be rebooked with another bank if rates are better. BUT, the cancellation and rebooking are to be done simultaneously on the maturity date of the contract. (seems quite restrictive, stupid). Is it really followed in practice?

INDIANS CAN COVER FDI RISK

• Equity and Loan investments overseas can be covered with ADs
• Forward Contracts can be cancelled or rolled over on due dates.
• Rebooking also possible, but to the extent of 50% of cancelled contract.
• If market value of FDI shrinks during life of the forward contract, the forward contract may continue to the original maturity. Rollover, HOWEVER, will be to the extent of market value of the FDI at the time of rollover.

FOREIGN CURRENCY DENOMINATED RUPEE TRANSACTIONS

• Foreign currency denominated, but Rupee settled transactions, can be covered.
• Such contracts are to be held till maturity and cash settled by cancellation.
• Contracts once cancelled cannot be rebooked.
• Currency indexed Customs duty payable by Importers can also be covered. If the Duty payable changes due to changes in duty rates, the Forward Contracts may be cancelled/ rebooked before maturity

NEXT