What changed
Previously, banks could only use IRFs to hedge risks in their investment portfolio. Now, RBI has allowed banks to also take trading positions in IRFs, while keeping all other existing guidelines unchanged.
What it means for you
Banks can now take trading positions in IRFs in addition to hedging. This may allow for profit from interest rate movements but also increases risk exposure. Banks should ensure appropriate risk management.
What you must do
- Ensure compliance with all existing IRF guidelines from the June 2003 circular.
- Extend these guidelines to overseas branches as applicable.
Who it affects
All commercial banks (excluding RRBs and LABs), Treasury and risk management departments, Overseas branches of Indian banks
Can banks now use IRFs for speculation?
RBI has allowed trading positions, which means banks can take positions beyond hedging, but the circular does not explicitly mention speculation or profit.