RBI eases forex hedging documentation: annual audit cert now enough
Current · Source: Reserve Bank of India · RBI/2013-14/118 · issued 04 Jul 2013 · ~1 min read
Quick answerRBI has replaced the quarterly statutory auditor certificate requirement for forex hedging under contracted exposure with an annual certificate. This reduces compliance burden for resident entities while retaining the client undertaking against double hedging.
The rule, in the simplest words
Banks can now ask for a yearly paper from the auditor (a person who checks money records) instead of every three months to prove that the company's bets on foreign money (forex hedging) are not bigger than the money they expect to get.
Companies must still promise in writing before each bet that they are not making the same bet with another bank (no double hedging).
The yearly paper must cover the whole year, showing that at any time the bets did not go over the real money the company had.
How it plays out — a real example
A forex & trade-finance officer in Indore, Priya, used to chase her exporter client every quarter for an auditor's certificate. Now she just asks for one yearly certificate, saving time and paperwork. But before each new foreign-exchange bet, she still gets the client's signed promise that they aren't hedging the same deal with another bank.
What changed
Earlier, AD Category-I banks had to obtain quarterly certificates from statutory auditors confirming that outstanding derivative contracts did not exceed underlying exposures. Now, an annual certificate from statutory auditors suffices. The requirement for a client undertaking that the exposure is not used for hedging with another AD bank remains unchanged.
What it means for you
Banks can now reduce the frequency of chasing clients for quarterly audit certificates, lowering operational costs and paperwork. Clients, especially exporters, get relief from quarterly compliance cycles. However, banks must still ensure the annual certificate covers the entire year and continue to obtain the client undertaking at each transaction.
What you must do
Update internal hedging documentation policies to accept annual statutory auditor certificates instead of quarterly ones.
Ensure client undertaking forms are still obtained before each derivative transaction to prevent double hedging.
Communicate the revised requirement to your forex clients and their statutory auditors.
Train relationship managers and treasury staff on the new annual certification process.
Who it affects
AD Category-I banks, Resident entities using contracted exposure route for forex hedging, Statutory auditors of such entities
❓ Common questions
Does this circular remove the need for any certificate from the client?
No. The annual statutory auditor certificate replaces the quarterly one, but the client must still give an undertaking that the exposure is not used for hedging with any other AD bank.
What if a client's exposure changes significantly within a year?
The annual certificate must confirm that at any point during the year, outstanding contracts did not exceed the underlying exposure at that time. Banks should rely on the auditor's verification.
📜 Read the original circular — full text as issued by RBI
RBI/2013-14/118
A.P. (DIR Series) Circular No.02
July 04, 2013
To,
All Authorised Dealer Category – I Banks
Madam / Sir,
Risk Management and Inter-Bank Dealings- Liberalization of documentation requirements for the resident entities in the Indian Forex Market
Attention of Authorized Dealers Category – I (AD Category – I) banks is invited to A.P. (DIR Series) Circular No. 32 dated December 28, 2010 issued on Comprehensive Guidelines on Over the Counter (OTC) Foreign Exchange Derivatives and Overseas Hedging of Commodity Price and Freight Risks. In the annex to this circular, under paragraph (II) sub-paragraph (b) (ii) it has been stated that in the case of contracted exposure, AD Category I banks must obtain “Quarterly certificates from the statutory auditors of the users, that the contracts outstanding at any point of time with all AD Category I banks during the quarter did not exceed the value of the underlying exposures”
2. In view of the recommendations of the Technical Committee on Services / Facilities for the Exporters (Chairman: Shri G. Padmanabhan, Executive Director, Reserve Bank of India) regarding rationalization of the documentation process, it has now been decided that AD banks, while offering hedging products under the contracted exposure route to their customers may obtain an annual certificate from the statutory auditors to the effect that the contracts outstanding with all AD category I banks at any time during the year did not exceed the value of the underlying exposures at that time. It is reiterated, however, that that the AD bank, while entering into any derivative transaction with a client, shall have to obtain an undertaking from the client to the effect that the contracted exposure against which the derivative transaction is being booked has not been used for any derivative transaction with any other AD bank.
3. AD Category - I banks may bring the contents of this circular to the notice of their constituents and customers concerned.
4. The directions contained in this circular have been issued under Sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions /approvals, if any, required under any other law.
Yours faithfully,
(C D Srinivasan)
Chief General Manager
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2013-14/118 · issued 04 Jul 2013. The plain-English explanation above is BankPulse’s own independent summary.
Example: if you are a Compliance officer at a bank this circular applies to (AD Category-I banks, Resident entities using contracted exposure route for forex hedging, Statutory auditors of such entities), your first concrete step on “RBI eases forex hedging documentation: annual audit cert now enough” is: “Update internal hedging documentation policies to accept annual statutory auditor certificates instead of quarterly ones.” (RBI issued this 04 Jul 2013).
Action required: Update internal hedging documentation policies to accept annual statutory auditor certificates instead of quarterly ones.
Action required: Ensure client undertaking forms are still obtained before each derivative transaction to prevent double hedging.
Action required: Communicate the revised requirement to your forex clients and their statutory auditors.
Action required: Train relationship managers and treasury staff on the new annual certification process.
Owner: ____________ Target date: ____________
Board/committee approval needed? Y / N
Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.
💬 Banker Discussion
Discuss this circular with fellow bankers — reply, upvote what helps, report what doesn’t belong. Be professional; no client data. Views are the commenter’s own, not BankPulse’s.
BankPulse Compliance Evidence Pack — generated 03 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly). Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=8210&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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