RBI Issues Master Direction on Hedging Commodity & Freight Risk Overseas
Current · Source: Reserve Bank of India · RBI/2022-23/152 · issued 12 Dec 2022 · ~1 min read
Quick answerRBI issued a Master Direction under FEMA, via circular dated December 12, 2022, detailing how AD Cat-I banks must facilitate customer hedging of commodity price and freight risks in overseas markets. Banks must follow these new modalities and inform customers.
The rule, in the simplest words
Banks (called AD Cat-I banks) must follow new rules when helping customers buy contracts to protect against price changes for things like oil, wheat, or shipping costs in foreign markets.
These rules replace old, scattered guidance with one clear set of instructions, so banks know exactly what to do.
Banks must tell their customers about these new rules and make sure all hedging deals follow the rules set by the RBI (India's central bank).
How it plays out — a real example
A forex & trade-finance officer in Mumbai receives a call from a jewelry exporter worried about gold prices falling. The officer explains that under the new Master Direction, the exporter can now hedge gold price risk in overseas markets using a single, clear set of rules. The officer updates the bank's internal checklist to match the new RBI guidelines and helps the exporter set up a hedging contract, ensuring everything complies with the latest FEMA regulations.
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
❓ Common questions
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.
📜 Read the original circular — full text as issued by RBI
RBI/2022-23/152
A. P. (DIR Series) Circular No. 20
December 12, 2022
All Authorised Dealer Category – I Banks
Madam / Sir,
Hedging of Commodity Price Risk and Freight Risk in Overseas Markets
Attention of Authorised Dealer Category - I (AD Cat-I) banks is invited to Regulation 6 and 6A of the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 dated May 3, 2000 ( Notification No. FEMA. 25/RB-2000 dated May 3, 2000 ), as amended from time to time, issued under clause (h) of sub-section (2) of Section 47 of Foreign Exchange Management Act, 1999 (Act 42 of 1999) as amended from time to time.
2. Within the contours of the Regulations, the Reserve Bank issues directions to Authorised Persons under Section 11 of the Foreign Exchange Management Act, 1999 (Act 42 of 1999). These Directions lay down the modalities for the AD Cat-I banks for facilitating hedging of commodity price risk and freight risk in overseas markets by their customers / constituents.
3. The Master Direction – Foreign Exchange Management (Hedging of Commodity Price Risk and Freight Risk in Overseas Markets) Directions, 2022 are enclosed herewith. AD Cat-I banks may bring the contents of these Directions to the notice of their customers / constituents 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,
(Dimple Bhandia)
Chief General Manager
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2022-23/152 · issued 12 Dec 2022. 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 (All Authorised Dealer Category – I Banks, Customers and constituents of AD Cat-I banks involved in commodity or freight hedging), your first concrete step on “RBI Issues Master Direction on Hedging Commodity & Freight Risk Overseas” is: “Review and implement the new Master Direction on hedging commodity price and freight risk in overseas markets.” (RBI issued this 12 Dec 2022).
Circular: RBI/2022-23/152 -- RBI Issues Master Direction on Hedging Commodity & Freight Risk Overseas
Issued: 12 Dec 2022
Action required: Review and implement the new Master Direction on hedging commodity price and freight risk in overseas markets.
Action required: Update internal policies and procedures for AD Cat-I banks to align with the modalities specified in the Direction.
Action required: Communicate the contents of the Direction to all relevant customers and constituents.
Action required: Ensure all hedging transactions comply with the modalities laid down in the new Direction, within the contours of FEMA Regulations 6 and 6A.
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=12424&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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