What changed
RBI has decided that the ECB guidelines for MFIs and NGOs, as specified in the December 2011 circular, will continue to apply until further notice. No new substantive changes were introduced; the circular primarily confirms the status quo and reiterates the full hedging requirement.
What it means for you
Banks dealing with MFI/NGO ECB proposals must ensure that the forex exposure is fully hedged at the time of drawdown. This maintains the existing compliance burden and does not relax any conditions. Lenders should update their internal processes to verify hedging documentation before allowing drawdowns.
What you must do
- Ensure that all ECB drawdowns by MFIs and NGOs are fully hedged as per the circular.
- Verify hedging compliance at the time of drawdown and maintain records.
- Communicate the continued applicability of the December 2011 ECB guidelines to your constituents and customers.
- Review your internal ECB processing checklists to include mandatory hedging verification.
Who it affects
AD Category-I banks, Micro Finance Institutions (MFIs), Non-Government Organizations (NGOs) engaged in microfinance, Borrowers availing ECB under automatic route
What is the key requirement for MFIs and NGOs borrowing under ECB?
The borrowing must be fully hedged against forex risk. The designated AD bank must confirm this at the time of drawdown.
Does this circular introduce any new rules?
No. It simply extends the existing guidelines from the December 2011 circular until further review, with no changes to the substantive requirements.
What should AD Category-I banks do to comply?
Banks must ensure that the forex exposure of the borrower is fully hedged at drawdown, and bring the circular's contents to the notice of their customers.