What changed
The limit for booking forward contracts without underlying documentation has been increased from US$ 100,000 to US$ 250,000 for all resident individuals, firms, and companies with actual or anticipated foreign exchange exposures. The new facility requires only a simple declaration, removing the need for further documentation. Existing facilities for SMEs remain unchanged.
What it means for you
Banks can now offer higher forward contract limits to a broader set of resident customers without demanding underlying documents, simplifying hedging for smaller exposures. This liberalisation may increase demand for forex derivative products among individuals and small businesses. Banks must update their internal processes and reporting formats as per the revised annexes.
What you must do
- Update internal guidelines to allow forward contract booking up to $250,000 based on a simple declaration without underlying documents.
- Ensure customers submit the revised application cum declaration form as per Annex I of the circular.
- Report these contracts using the revised format provided in Annex II.
- Communicate the new facility to all constituents and customers through appropriate channels.
- Verify that the total forward contracts booked per customer across all branches do not exceed the $250,000 limit.
Who it affects
AD Category-I banks, Resident individuals with forex exposures, Resident firms and companies with forex exposures, SMEs (existing facilities unchanged)
What is the new limit for booking forward contracts without underlying documents?
The limit has been raised from US$ 100,000 to US$ 250,000 for resident individuals, firms, and companies with actual or anticipated foreign exchange exposures.
Do customers need to provide any documents to book these forward contracts?
No, they only need to submit a simple declaration as per the revised format. No further documentation is required.
Does this circular affect the existing facilities for SMEs?
No, the existing facilities for SMEs remain unchanged as per earlier circulars.