What changed
Previously, only capital account forward contracts with tenor over one year could be cancelled with one AD bank and rebooked with another on maturity. Now, this switching flexibility is extended to all resident hedge transactions, including current account hedges. The conditions remain: simultaneous cancellation and rebooking on maturity, and the new bank must verify original cancellation.
What it means for you
Banks can now offer residents more competitive rates by allowing them to switch AD banks on hedge rollovers without losing hedge continuity. This increases competition among AD Category I banks for hedging business, as clients can move contracts to get better pricing. Banks must ensure robust verification processes to confirm original contract cancellation.
What you must do
- Update internal policies to allow cancellation and rebooking of forward contracts with another AD bank for all resident hedge transactions on maturity.
- Implement verification procedures to confirm original contract cancellation before rebooking with a new AD bank.
- Train staff on the expanded scope, covering both current and capital account hedges, and ensure simultaneous execution on maturity date.
- Communicate the new flexibility to corporate and retail clients to enhance service offerings.
Who it affects
AD Category I banks, Resident corporate hedgers, Retail customers with forward contracts, Treasury and risk management teams
Can a resident cancel a forward contract for a current account transaction and rebook with a different bank?
Yes, under this circular, the flexibility to switch AD banks on maturity now applies to all resident hedge transactions, including current account hedges, provided cancellation and rebooking are done simultaneously.
What conditions must be met for switching AD banks on a forward contract?
The switch must be due to competitive rates or termination of banking relationship, cancellation and rebooking must occur simultaneously on the maturity date, and the new AD bank must ensure the original contract was cancelled.
Does this circular apply to non-resident hedgers?
No, the circular specifically extends the flexibility to all hedge transactions undertaken by residents. Non-resident hedgers are not covered by this change.