What changed
RBI issued guidelines allowing UCBs to participate in IRF exchanges for hedging purposes, effective August 28, 2009 (date of Directions). Banks must act only as clients, not on behalf of other clients, and submit monthly data in the prescribed format to their regional office within a fortnight of the succeeding month.
What it means for you
UCBs can now manage interest rate risk on their bond portfolios using standardized IRF contracts on 10-year notional government securities. This provides a regulated hedging tool, but banks must strictly follow RBI and SEBI guidelines and cannot trade for clients. Monthly compliance reporting is mandatory.
What you must do
- Ensure UCB participation in IRF exchanges is only as clients for hedging underlying exposures, not for speculation or client trading.
- Submit monthly data on IRF transactions in the prescribed proforma (Annex II) to the concerned Regional Office within a fortnight of the succeeding month.
- Verify compliance with RBI Direction FMD.MSRG.1/02.04.003/2009-10 and SEBI guidelines before trading.
- Train treasury staff on IRF contract specifications and hedging rules for 10-year government securities.
Who it affects
Primary (Urban) Cooperative Banks (UCBs), Treasury departments of UCBs, Regional Offices of RBI supervising UCBs
What is the reporting requirement for IRF trades?
UCBs must submit monthly data on their IRF participation in the format provided in Annex II to their respective RBI Regional Office within a fortnight (14 days) of the end of each month.