What changed
RBI issued FEMA Notification No. 122/2004-RB amending regulations on transfer or issue of securities by persons resident outside India, effective from the date of gazette notification. Separately, FEMA Notification No. 105/2003-RB amended derivative contract regulations to allow entities 'as permitted by the Reserve Bank' to engage in foreign exchange derivative contracts, in addition to those engaged in export-import trade.
What it means for you
Banks must update their compliance frameworks to reflect the expanded scope for derivative contracts, which now includes entities specifically permitted by RBI beyond traditional export-import traders. The foreign investment amendment may require banks to revise their procedures for handling securities issued to non-residents, ensuring alignment with the updated FEMA regulations.
What you must do
- Review and update internal policies to incorporate the amended FEMA regulations on foreign investments and derivative contracts.
- Train staff handling foreign exchange transactions on the expanded eligibility criteria for derivative contracts.
- Communicate the changes to constituents and customers as directed by the circular.
- Ensure all documentation and reporting systems reflect the new FEMA notifications.
Who it affects
Authorised Dealer Banks, Entities engaged in export-import trade, Non-resident investors and issuers of securities, Customers dealing in foreign exchange derivatives
What does the amendment to derivative contract regulations mean for my bank?
It expands the pool of eligible counterparties for foreign exchange derivative contracts to include entities specifically permitted by RBI, not just those in export-import trade. Your bank must verify eligibility and update onboarding procedures.
When did these amendments come into effect?
The derivative amendment (FEMA 105/2003-RB) came into force on November 11, 2003, and the foreign investment amendment (FEMA 122/2004-RB) on September 21, 2004, as per their respective gazette notifications.