What changed
Earlier, FIIs could not rebook cancelled forward contracts at all. Now, rebooking is allowed up to 2% of the portfolio's market value as at the beginning of the financial year, instead of the initially proposed 25% of cancelled contracts. The change addresses market concerns about monitoring cancellations.
What it means for you
Banks can now offer FII clients limited flexibility to rebook cancelled hedges, linked to portfolio size rather than cancellation volume. This reduces operational complexity for banks in tracking cancellations. However, the 2% cap is conservative, and banks must ensure outstanding contracts never exceed portfolio value.
What you must do
- Update internal systems to calculate FII rebooking eligibility as 2% of portfolio market value at the start of the financial year.
- Monitor forward cover outstanding on a fortnightly basis to ensure it does not exceed portfolio market value.
- Use the revised reporting format (annexed) to report FII forward cover details, including rebooked contracts.
- Communicate the new rebooking limit and conditions to FII clients and ensure underlying exposure is always maintained.
Who it affects
AD Category-I banks handling FII forward contracts, Foreign Institutional Investors (FIIs) with equity/debt investments in India, RBI's foreign exchange monitoring and reporting teams
What is the new limit for rebooking cancelled forward contracts for FIIs?
FIIs can rebook cancelled forward contracts up to 2% of the market value of their entire equity and/or debt investment in India, based on the portfolio value at the start of the financial year.
How often must banks monitor FII forward cover?
Banks must monitor forward cover on a fortnightly basis to ensure total outstanding contracts do not exceed the market value of the portfolio and rebooked contracts stay within the 2% limit.
Does this circular change any other conditions for FII forward contracts?
No, all other instructions in Schedule II of FEMA.25/RB-2000 remain unchanged. The rebooking facility is subject to underlying exposure at all times.