What changed
RBI issued a new Master Direction – Foreign Exchange Management (Hedging of Commodity Price Risk and Freight Risk in Overseas Markets) Directions, 2022. This replaces earlier ad-hoc guidance and consolidates the modalities for AD Cat-I banks to enable customer hedging of commodity price and freight risks abroad.
What it means for you
Banks now have a single, clear regulatory framework for processing customer hedging of commodity and freight risks overseas. This reduces ambiguity and ensures compliance with FEMA provisions. Lenders must update their internal processes and customer communication to align with the new Direction.
What you must do
- Review and implement the new Master Direction on hedging commodity price and freight risk in overseas markets.
- Update internal policies and procedures for AD Cat-I banks to align with the modalities specified in the Direction.
- Communicate the contents of the Direction to all relevant customers and constituents.
- Ensure all hedging transactions comply with the modalities laid down in the new Direction, within the contours of FEMA Regulations 6 and 6A.
Who it affects
All Authorised Dealer Category – I Banks, Customers and constituents of AD Cat-I banks involved in commodity or freight hedging
What is the effective date of this Master Direction?
The circular is dated December 12, 2022, and the Master Direction is enclosed with it. Banks must comply from that date.
Does this Direction replace any previous regulations?
It consolidates and supersedes earlier ad-hoc instructions on hedging commodity price and freight risk overseas, providing a single comprehensive framework under FEMA.
Who is responsible for implementing these directions?
AD Cat-I banks are responsible for implementing the modalities and bringing the contents to the notice of their customers.