What changed
Residents can no longer rebook forward contracts once cancelled, regardless of underlying exposure type or tenor. For importers using past performance facility, the hedging limit is slashed to 25% of the higher of average of last three years' turnover or previous year's turnover, and all contracts must be fully deliverable with no exchange gain pass-through on cancellation. FIIs lose the ability to rebook cancelled forward contracts entirely. Banks' net overnight open position limits are reduced across the board, with intra-day limits capped at existing NOOPL.
What it means for you
Banks must immediately stop allowing rebooking of cancelled forwards for residents and FIIs, and enforce the reduced 25% past performance limit for importers. This tightens hedging flexibility, potentially increasing demand for deliverable contracts and reducing speculative positions. Banks also face stricter treasury limits, which may constrain intra-day trading and require recalibration of risk management systems.
What you must do
- Update systems to prevent rebooking of any cancelled forward contracts for residents and FIIs.
- Recalculate and enforce the reduced 25% past performance hedging limit for importers, blocking further bookings for those already exceeding it.
- Ensure all past performance facility contracts are on fully deliverable basis and do not pass on exchange gains to customers on cancellation.
- Implement the reduced NOOPL as advised by RBI separately and cap intra-day open positions at the existing NOOPL.
- Communicate these changes to all constituents and customers immediately.
Who it affects
All Authorised Dealer Category-I banks, Resident importers and exporters using forward contracts, Foreign Institutional Investors (FIIs), Treasury departments of banks
Can a resident company cancel a forward contract and book a new one for the same exposure?
No. Under the new rules, once a forward contract is cancelled, it cannot be rebooked for any type or tenor of underlying exposure. The only exception is rolling over on maturity.
What is the new limit for importers using the past performance facility?
The limit is reduced to 25% of the higher of the average of the previous three financial years' actual import/export turnover or the previous year's actual turnover. All contracts under this facility must be fully deliverable.
Are FIIs still allowed to hedge their investments?
Yes, FIIs can hedge up to the market value of their entire equity/debt portfolio, but once a forward contract is cancelled, it cannot be rebooked. They can only roll over contracts on or before maturity.