What changed
Previously, only banks could trade currency options on recognized exchanges. This circular extends that permission to large NBFCs-ND-SI, allowing them to hedge forex exposures through designated currency options exchanges, subject to RBI's Foreign Exchange Department guidelines.
What it means for you
NBFCs with significant forex exposure can now use exchange-traded currency options for hedging, reducing reliance on over-the-counter products. This enhances risk management flexibility and aligns NBFC hedging practices with banking norms. Balance sheet disclosures ensure transparency.
What you must do
- Ensure your NBFC-ND-SI has asset size of ₹100 crore or more to qualify.
- Use currency options exchanges recognized by SEBI only for hedging underlying forex exposures, not speculation.
- Comply with RBI's Foreign Exchange Department guidelines on currency options.
- Make appropriate disclosures in your balance sheet for all currency options transactions.
Who it affects
Non-deposit taking NBFCs with asset size of ₹100 crore and above (NBFCs-ND-SI), Risk management teams of large NBFCs, Compliance and treasury departments of NBFCs
Can NBFCs use currency options for speculation?
No, participation is allowed only for hedging underlying forex exposures. Speculative trading is not permitted.
What disclosures are required?
NBFCs must make appropriate disclosures in their balance sheets regarding all currency options transactions undertaken.
Does this apply to all NBFCs?
No, only non-deposit taking NBFCs with asset size of ₹100 crore and above (NBFCs-ND-SI) are eligible.