What changed
Previously, only designated branches of AD Category I banks maintaining FII accounts could act as market makers for FII currency hedging. Now, FIIs can approach any AD Category I bank for such hedging, subject to conditions like providing a valuation certificate from the designated bank and a global hedge declaration.
What it means for you
This expands FIIs' access to hedging facilities, potentially increasing competition among banks for FII business. Banks must ensure compliance with documentation requirements, including valuation certificates and quarterly declarations, and settle hedges through the designated bank's Special Non-Resident Rupee Account via RTGS/NEFT.
What you must do
- Update internal policies to allow any AD Category I branch to offer currency hedging to FIIs, not just designated branches.
- Require FIIs to provide a valuation certificate from their designated AD bank and a declaration that global hedges plus cancelled contracts are within investment market value.
- Ensure hedges booked with non-designated banks are settled through the designated bank's Special Non-Resident Rupee Account via RTGS/NEFT.
- Collect quarterly declarations from FIIs confirming total derivatives contracts are within investment market value and share with custodian bank.
Who it affects
All AD Category I banks, FIIs investing in Indian equity and debt markets, Custodian banks handling FII accounts
Can FIIs now hedge with any AD Category I bank without prior approval?
Yes, FIIs can approach any AD Category I bank for currency hedging, but they must provide a valuation certificate from their designated AD bank and a declaration that global hedges plus cancelled contracts are within the market value of their investments.
How should hedges taken with non-designated banks be settled?
Hedges taken with AD banks other than the designated bank must be settled through the Special Non-Resident Rupee Account maintained with the designated bank, using RTGS or NEFT.
What quarterly reporting is required from FIIs?
FIIs must provide a quarterly declaration to the custodian bank confirming that the total amount of derivatives contracts booked across all AD Category banks is within the market value of their investments.