What changed
RBI issued Master Circular No. 14/2010-11 on July 1, 2010, consolidating all prior instructions on risk management and inter-bank dealings into a single document. The circular includes a sunset clause, meaning it will be withdrawn on July 1, 2011 and replaced with an updated version.
What it means for you
Banks must now refer to this single master circular for all rules on forex derivative contracts, commodity and freight hedging, rupee accounts of non-resident banks, and inter-bank FX dealings. The one-year sunset clause means banks should prepare for an updated circular by July 2011, ensuring compliance with the latest instructions.
What you must do
- Review the master circular to ensure all internal policies align with consolidated instructions on forex derivatives and hedging.
- Update training materials for staff handling AD Category-I operations to reflect the consolidated guidelines.
- Monitor the sunset clause timeline and prepare for the replacement circular by July 1, 2011.
- Verify that all forward contracts and derivative bookings comply with the underlying exposure verification requirements.
Who it affects
All Authorised Dealers - Category I Banks, Importers and exporters using forward contracts, Non-resident banks with rupee accounts, Entities hedging commodity or freight risks
What is the sunset clause in this master circular?
The circular includes a sunset clause of one year, meaning it will stand withdrawn on July 1, 2011 and be replaced by an updated master circular on the same subject.
Which regulations govern the topics covered in this circular?
The circular consolidates instructions under FEMA 1/2000-RB, FEMA 3/RB-2000, and FEMA 25/RB-2000, along with subsequent amendments.
Can forward contracts be booked without documentary evidence?
Yes, AD Category-I banks may allow importers/exporters and special dispensation entities to book forward contracts based on a declaration of exposure, subject to conditions in the circular.