What changed
This Master Circular consolidates all existing instructions on risk management and inter-bank dealings into a single document, replacing earlier circulars. It introduces a sunset clause of one year, meaning the circular will be withdrawn on July 1, 2014, and replaced by an updated version. Key operational guidelines include a 15-day window for customers to submit underlying documents for forex contracts, with penalties for non-compliance.
What it means for you
Banks must ensure strict verification of underlying exposures for all forex derivative contracts, with a 15-day document submission deadline. Non-compliance by customers on more than three occasions in a financial year will require upfront document submission for future contracts. The sunset clause signals RBI's intent to regularly update these guidelines, so banks should stay prepared for annual revisions.
What you must do
- Verify underlying documents for all forex derivative contracts within 15 days of booking (for contracted exposures).
- Cancel contracts and withhold exchange gains if documents are not submitted within 15 days (for contracted exposures).
- Track customer compliance; after three failures in a financial year, require upfront document submission (for contracted exposures).
- Prepare for the circular's withdrawal on July 1, 2014, and monitor for the updated version.
- Ensure all staff handling forex derivatives are trained on these consolidated guidelines.
Who it affects
AD Category-I banks, Persons resident in India (other than AD Category-I banks) using forex derivatives
What happens if a customer fails to submit underlying documents within 15 days?
The contract must be cancelled, and any exchange gain should not be passed to the customer. If this happens more than three times in a financial year, future contracts require upfront document submission.
Is this circular still valid after July 1, 2014?
No, it has a sunset clause and stands withdrawn on July 1, 2014. RBI will issue an updated Master Circular to replace it.
Who is covered under 'Persons Resident in India other than Authorised Dealers Category-I'?
This includes all Indian residents except AD Category-I banks, such as corporates, individuals, and other entities that need to hedge foreign exchange exposure.