What changed
RBI accepted an Internal Working Group's recommendations to introduce exchange-traded currency futures in India. Banks that meet prudential norms can now directly join currency derivatives segments of SEBI-recognized stock exchanges as trading-cum-clearing members. Banks not meeting these criteria can only participate as clients.
What it means for you
This opens a new revenue stream for eligible banks through currency futures brokerage and proprietary trading, while deepening the forex market. Banks must maintain clear segregation of their own and client positions, and obtain board approval for risk management guidelines. RBI retains the right to impose restrictions if supervisory concerns arise.
What you must do
- Verify your bank meets the minimum net worth of Rs 500 crore, CRAR of 10%, net NPA below 3%, and net profit for the last three years.
- Obtain board approval for detailed guidelines covering conduct and risk management of currency futures activities.
- Ensure strict segregation of the bank's own positions from client positions in the currency derivatives segment.
- Apply to become a trading/clearing member of a SEBI-approved stock exchange's currency derivatives segment.
Who it affects
All scheduled commercial banks (excluding RRBs) with AD Category I status, Banks meeting prudential criteria can become trading/clearing members, Banks not meeting criteria can only act as clients in currency futures
What are the prudential requirements for a bank to become a trading/clearing member?
The bank must have a minimum net worth of Rs 500 crore, a CRAR of at least 10%, net NPAs not exceeding 3%, and net profit for the last three consecutive years.
Can a bank that does not meet these criteria still participate in currency futures?
Yes, such banks can participate only as clients in the currency futures market, not as trading/clearing members.
What risk management measures must a bank put in place?
The bank must lay down detailed guidelines with board approval for conducting this activity and managing risks, and ensure its own positions are kept distinct from client positions.