What changed
RBI issued a clarification on May 16, 2012, regarding the earlier circular (May 10, 2012) that mandated converting 50% of EEFC balances to rupees. The clarification specifies that the conversion requirement applies only to the available balance after deducting amounts earmarked for outstanding forward or option contracts booked before May 10, 2012.
What it means for you
Banks and their customers can now exclude funds already committed under forward/option contracts from the mandatory 50% conversion. This reduces the immediate liquidity impact on exporters who had hedged their forex exposure before the rule was announced. It provides relief by ensuring that hedged positions are not disrupted by the conversion requirement.
What you must do
- Update internal systems to calculate available EEFC balance by netting off earmarked amounts for forward/option contracts booked before May 10, 2012.
- Advise customers to provide details of outstanding forward/option contracts booked before May 10, 2012, for accurate netting.
- Ensure that only the net available balance is subject to the 50% conversion to rupee accounts.
- Communicate this clarification to all relevant constituents and customers.
Who it affects
AD Category-I banks, Exporters maintaining EEFC accounts, Customers with outstanding forward/option contracts
Does the 50% conversion apply to all EEFC balances?
No, it applies only to the available balance after netting off amounts earmarked for outstanding forward/option contracts booked before May 10, 2012.
What if a customer has forward contracts booked after May 10, 2012?
The clarification specifically mentions contracts booked before May 10, 2012. Contracts booked on or after that date are not covered by this netting provision.