What changed
RBI issued a master circular consolidating all existing instructions on risk management and inter-bank dealings, including forward contracts, rupee accounts of non-resident banks, and inter-bank forex transactions. The circular includes a sunset clause, meaning it will stand withdrawn on July 1, 2008, and be replaced by an updated version.
What it means for you
Banks and authorized dealers now have a single reference document for compliance, reducing the need to track multiple circulars. The sunset clause ensures that the instructions will be reviewed and updated within a year, keeping regulations current. This consolidation simplifies operational procedures for hedging and inter-bank transactions.
What you must do
- Review the master circular to ensure all risk management and inter-bank dealings comply with consolidated instructions.
- Update internal policies and training materials to reflect the consolidated guidelines, especially for forward contracts and non-resident bank accounts.
- Prepare for the sunset clause by planning to adopt the updated master circular expected by July 1, 2008.
- Verify that all forward contracts are booked only against genuine underlying exposures, with proper documentation.
Who it affects
All Authorised Dealers Category-I banks, Non-resident banks with rupee accounts in India, Corporates and entities hedging foreign exchange risk, Foreign Institutional Investors (FIIs) and Non-resident Indians (NRIs)
What is the sunset clause in this master circular?
The circular has a sunset clause of one year, meaning it will stand withdrawn on July 1, 2008, and be replaced by an updated master circular on the same subject.
Can forward contracts be booked without documentary evidence?
Yes, AD banks may allow importers and exporters to book forward contracts based on a declaration of exposure, subject to conditions in paragraph A2 of the circular, including limits based on past performance.
Are EEFC account balances eligible for forward contracts?
Yes, but such contracts must be earmarked for delivery and cannot be cancelled; they may only be rolled over.