What changed
Earlier, forward contracts for hedging overseas direct investments had to be completed by delivery or rolled over, with no cancellation allowed. Now, AD Category-I banks can permit cancellation of such contracts, and up to 50% of the cancelled contracts can be rebooked.
What it means for you
Banks can offer more flexible hedging products to resident entities with overseas investments, as cancellation and partial rebooking are now permitted. This reduces the rigidity of earlier rules, potentially increasing demand for forward contracts and improving customer satisfaction.
What you must do
- Update internal policies to allow cancellation of forward contracts for overseas direct investments.
- Ensure that only 50% of cancelled contracts are rebooked, as per the circular.
- Communicate the new flexibility to customers with overseas direct investments.
- Verify underlying exposure before permitting hedging transactions.
Who it affects
AD Category-I banks, Resident entities with overseas direct investments in equity or loan
Can we cancel forward contracts for overseas direct investments now?
Yes, AD Category-I banks may allow cancellation of such forward contracts, which was not permitted earlier.
What is the rebooking limit after cancellation?
Up to 50% of the cancelled contracts may be rebooked. All other conditions from the 2003 circular remain unchanged.