What changed
Previously, RBI approved commodity hedging on a case-by-case basis. Now, RBI delegates authority to commercial bank ADs meeting minimum norms (3 years profitability, 9% CRAR, net NPAs ≤4%, net worth ≥₹300 crore) to permit listed companies to hedge price risk on commodities (except gold, silver, petroleum, petroleum products) in international exchanges. Banks must obtain RBI approval before granting permissions and submit annual reports.
What it means for you
This delegation reduces RBI's direct case-by-case workload and empowers stronger banks to facilitate commodity hedging for corporates, improving risk management efficiency. Banks must rigorously verify corporate board resolutions and ensure only genuine price risk exposures are hedged, as domestic price-linked transactions are not allowed. Non-compliance could lead to withdrawal of delegated authority.
What you must do
- Assess if your bank meets the minimum norms: 3 years continuous profitability, CRAR ≥9%, net NPAs ≤4%, net worth ≥₹300 crore.
- If eligible, apply to RBI's Forex Markets Division for approval to grant commodity hedging permissions.
- Before approving any corporate, require a board resolution confirming risk understanding, nature of hedges, and exposure to price risk.
- Refuse any hedge transaction if bonafides are doubtful or the corporate lacks price risk exposure.
- Submit an annual report to RBI by April 30 each year listing corporates permitted and commodities hedged.
Who it affects
Commercial banks authorized to deal in foreign exchange (AD banks), Listed companies seeking to hedge commodity price risk on imports/exports, RBI's Foreign Exchange Department
Which commodities are excluded from this delegated hedging facility?
Gold, silver, petroleum, and petroleum products are excluded. Hedging for these commodities still requires RBI approval on a case-by-case basis.
Can a company hedge domestic price risk linked to international commodity prices?
No. Hedging price risk on domestic sale/purchase transactions is not permitted, even if the domestic price is linked to international prices.
What happens if a bank fails to meet the minimum norms after being approved?
RBI retains the right to withdraw the permission granted to the bank if considered necessary.