What changed
Previously, only AD Category-I banks meeting specific norms could permit listed companies to hedge commodity price risks. Now, all AD Category-I banks can grant such permissions for any commodity except gold, silver, and platinum. Additionally, unlisted companies can also hedge import/export price risks under guidelines in the annex.
What it means for you
Banks gain broader authority to approve commodity hedging, reducing the need for RBI approval for routine cases. This expands hedging access for more corporates, including unlisted ones, potentially increasing bank fee income from derivative services. Banks must ensure compliance with the new delegated route guidelines and submit annual reports.
What you must do
- Update internal policies to allow all AD Category-I banks to approve commodity hedging for listed and unlisted companies under the delegated route.
- Require corporates to submit hedging strategy details as per the annex before approval.
- Submit an annual report to RBI by April 30 each year listing corporates and commodities hedged.
- Forward any applications not covered under the delegated route to RBI for approval.
- Communicate these changes to customers and constituents.
Who it affects
All AD Category-I banks, Listed and unlisted companies hedging commodity price risks, Corporate treasuries and risk management teams
Which commodities are excluded from this hedging permission?
Gold, silver, and platinum are excluded from the delegated route for commodity hedging.
What must corporates submit to banks for hedging approval?
Corporates must provide a brief description of their hedging strategy, including business activity, risk nature, instruments, exchanges, brokers, and credit lines.
What is the annual reporting requirement for banks?
Banks must submit an annual report to RBI by April 30 each year, listing the corporates granted permission and the commodities hedged.