Home › Circulars › RBI/2008-09/373

RBI Delegates Freight Hedging Powers to AD Banks

Current · Source: Reserve Bank of India · RBI/2008-09/373 · issued 04 Feb 2009 · ~2 min read
Quick answerRBI now allows AD Category-I banks to approve freight hedging for domestic oil-refining and shipping companies. Hedging can be OTC or exchange-traded, with a one-year tenor. Oil firms can hedge up to 50% of past import volume; shipping firms must base hedges on owned/controlled ships.
The rule, in the simplest words
How it plays out — a real example

Rahul, a forex & trade-finance officer in Mumbai, helps an oil-refining company hedge their freight risk by approving a one-year contract for 25% of their past import volume. He ensures the company has a Board-approved risk management policy and documents their underlying exposure before finalizing the deal.

What changed

Previously, only select AD banks could approve commodity hedging; now all AD Category-I banks with RBI permission can approve freight hedging for oil-refining and shipping companies. The circular sets specific conditions: one-year maximum tenor, plain vanilla products, and underlying exposure based on actual contracts or past performance (50% of imports for oil firms, owned ships for shipping firms).

What it means for you

Banks gain greater autonomy to approve freight hedging, reducing the need for case-by-case RBI approval. This streamlines risk management for oil-refining and shipping companies, but banks must enforce strict compliance: Board-approved risk policies, documentation of underlying exposure, and half-yearly reporting. Non-compliance could expose banks to regulatory action.

What you must do

Who it affects

AD Category-I banks with RBI permission for commodity hedging, Domestic oil-refining companies, Domestic shipping companies, Other companies exposed to freight risk (must approach RBI separately)

❓ Common questions

What is the maximum tenor allowed for freight hedging under this circular?

The maximum tenor permissible is one year forward.

Can oil-refining companies hedge freight on anticipated imports?

Yes, up to 50% of the volume of actual imports in the previous year or 50% of the average volume over the previous three financial years, whichever is higher, based on past performance.

What documentation must shipping companies provide to the bank?

A Chartered Accountant certificate for owned/controlled ships, and underlying documents (e.g., ship employment) during the hedge currency. An undertaking to produce these documents is also required.

📜 Read the original circular — full text as issued by RBI
v).   AD Category – I banks should ensure that the entities hedging their freight exposures should have Board approved Risk Management policies which define the overall framework within which derivative transactions should be undertaken and the risks contained. AD Category - I banks should approve this facility only after ensuring that the sanction of the company's Board has been obtained for the specific activity and also for dealing in overseas exchanges / markets. The Board approval must include explicitly the authority/ies permitted to undertake the transactions, the mark-to-market policy, the counterparties permitted for OTC derivatives, etc. and a list of transactions undertaken should be put up to the Board on a half-yearly basis. The AD Category - I bank must obtain a copy of Risk Management Policy from the company incorporating the above details at the time of permitting the transaction itself and as and when changes made therein. 3. In the case of other companies which are exposed to freight risk, AD Category - I banks may approach the Reserve Bank for permission on behalf of their customers. Applications may be forwarded to the Chief General Manager, Reserve Bank of India, Foreign Exchange Department, Forex Markets Division, Amar Building, 5th floor, Mumbai 400 001. 4. Necessary amendments to Notification No.FEMA.25/RB-2000 dated May 3, 2000 [Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000] are being issued separately. 5.AD Category – I banks may bring the contents of the circular to the notice of their constituents and customers concerned. 6. The directions contained in this circular have been issued under Sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions / approvals, if any, required under any other law.
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2008-09/373 · issued 04 Feb 2009. The plain-English explanation above is BankPulse’s own independent summary.
🧰 Tools — save, print, templates & related
Most relevant forCorporate / Wholesale Banking RMTrade Finance / Forex OperationsCompliance TeamRisk ManagementLegal / Documentation & Recovery-LegalSenior Management / Board
🛠 Banker’s toolkit — checklists & reply templates →
Related circulars · Foreign Exchange (FEMA)
RBI raises cash carry limit for travellers to Rs 7,500Rupee Value of Special Currency Basket Revised to Rs.60.897378ECB Policy Liberalised: Cost Ceilings Removed, NBFCs & Realty Get BoostECB: Integrated Township Exemption Removed, Cost Ceilings TightenedRBI Delegates Bank Guarantee Powers for Foreign Airlines to AD Banks
Browse all departments →
Who does what — compliance checklist
🏦 Branch Manager
  • Ensure oil-refining and shipping companies have Board-approved risk management policies covering derivatives, mark-to-market, and counterparties.
📜 Compliance
  • Verify that your bank has RBI permission to approve commodity hedging before offering freight hedging.
  • Obtain and review underlying documents (import/export orders, ship employment) and past performance data for oil firms (50% of previous year's imports or 3-year average).
  • Require shipping companies to provide a Chartered Accountant certificate for owned/controlled ships and ensure hedges reflect underlying business.
  • Monitor compliance: collect half-yearly transaction reports from companies and ensure contracts are regularized during hedge currency.
Grouped from the action items above — a single circular may involve more than one team.
Worked example & action-note template

Example: if you are a Compliance officer at a bank this circular applies to (AD Category-I banks with RBI permission for commodity hedging, Domestic oil-refining companies, Domestic shipping companies, Other companies exposed to freight risk (must approach RBI separately)), your first concrete step on “RBI Delegates Freight Hedging Powers to AD Banks” is: “Verify that your bank has RBI permission to approve commodity hedging before offering freight hedging.” (RBI issued this 04 Feb 2009).

  1. Circular: RBI/2008-09/373 -- RBI Delegates Freight Hedging Powers to AD Banks
  2. Issued: 04 Feb 2009
  3. Action required: Verify that your bank has RBI permission to approve commodity hedging before offering freight hedging.
  4. Action required: Ensure oil-refining and shipping companies have Board-approved risk management policies covering derivatives, mark-to-market, and counterparties.
  5. Action required: Obtain and review underlying documents (import/export orders, ship employment) and past performance data for oil firms (50% of previous year's imports or 3-year average).
  6. Action required: Require shipping companies to provide a Chartered Accountant certificate for owned/controlled ships and ensure hedges reflect underlying business.
  7. Action required: Monitor compliance: collect half-yearly transaction reports from companies and ensure contracts are regularized during hedge currency.
  8. Owner: ____________ Target date: ____________
  9. Board/committee approval needed? Y / N
  10. Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.

💬 Banker Discussion

Discuss this circular with fellow bankers — reply, upvote what helps, report what doesn’t belong. Be professional; no client data. Views are the commenter’s own, not BankPulse’s.

Loading comments…
BankPulse Compliance Evidence Pack — generated 05 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly).
Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=4823&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
Public beta — plain-English informational summaries. Always verify against the official RBI source (circular number cited on every page) before making compliance, credit, treasury, audit, or operational decisions. · Join our WhatsApp channel ↗
—