What changed
SMEs can now book, cancel, rebook, and roll over forward contracts without producing underlying documents, provided they meet SME criteria and have credit facilities with the AD bank. Resident individuals can book forward contracts up to USD 100,000 without underlying documents, based on self-declaration, for tenors up to one year.
What it means for you
Banks can offer more flexible hedging to SMEs, reducing documentation burden and enabling dynamic risk management. For individuals, the USD 100,000 limit opens hedging for personal remittances, but banks must ensure due diligence and suitability assessments for SME customers.
What you must do
- Verify SME status using RBI's RPCD circular definition before allowing forward contracts without documents.
- Ensure SME forward contracts align with their credit facilities for forex, working capital, or capex.
- Conduct due diligence on 'user appropriateness' and 'suitability' as per derivatives guidelines.
- For individuals, cap outstanding forward contracts at USD 100,000 notional and limit tenors to one year.
- Maintain declarations from SMEs about contracts booked with other AD banks to avoid duplication.
Who it affects
AD Category-I banks, Small and Medium Enterprises (SMEs) with forex exposure, Resident individuals with actual or anticipated remittances
Can SMEs book forward contracts without any underlying documents?
Yes, SMEs can book, cancel, rebook, and roll over forwards without producing underlying documents, but they must qualify as SME per RBI's RPCD definition and have credit facilities with the AD bank.
What is the limit for resident individuals to book forward contracts without documents?
Resident individuals can book forward contracts up to USD 100,000 notional value at any time, based on self-declaration, for tenors up to one year.
Are SMEs allowed to use options for hedging?
Yes, SMEs can use foreign currency rupee options for hedging, but they must produce underlying documents or use the past performance route.