FOREIGN CURRENCY LOANS

Indian borrower may enter into

• Interest Rate Swap,
• Currency Swap
• Coupon Swap
• Foreign Currency Option
• Interest Rate Cap or Collar (purchase)
• Forward Rate Agreement (FRA)

The above contracts may unwound also, may be freely cancelled and rebooked.

Conditions:

• The contract should not involve the Rupee
• Final approval (loan identification number) should have been issued by the RBI
• Hedge amount should not exceed the outstanding loan amount
• Maturity of hedge should not exceed maturity of loan.

SWAPS

Resident Indian having long-term forex OR Rupee exposure may enter into Foreign Currency – Rupee Swap under following conditions:

• No upfront payment of Rupees or its equivalent in any form shall be undertaken

ADs to act as intermediaries, matching counterparty requirements

OPTIONS

Banks allowed to enter into FX-Rupee Options with their customers on a back-to-back basis. They can also run Option books under RBI approval. All guidelines applicable to forward contracts are applicable to Rupee options also.

Resident Indian may enter into a Cross Currency Option Contract (not involving the Rupee) subject to

• There should be no net inflow of premium
• Maybe freely booked/ cancelled
• Contingent forex exposure arising from submission of foreign currency tender bid may be hedged using Options
• All guidelines applicable to cross currency forward contracts are applicable to cross currency options also.

Cross currency options are to be written on a fully covered back-to-back basis.

GUIDELINES FOR BANKS

1. Banks to ensure that in the case of
1. swap structures where premium is inbuilt into the cost
2. option contracts involving cost reduction structures, such structures do not result in increase in risk in any manner and do not result in net receipt of premium by the customer
2. Banks should not offer leveraged swap structures
3. Banks should not allow swap route to be used as surrogate forward contracts for those not qualified for forward covers.

BACK