What changed
RBI consolidated and updated rules for hedging commodity price risk and freight risk in overseas markets under FEMA. It defines direct and indirect exposure, lists eligible commodities (excluding gems/precious stones, with gold only on IFSC), and permits generic and structured derivatives. Banks are now required to ensure the entity's exposure, hedge quantity, and tenor are aligned before allowing remittances.
What it means for you
Indian banks can now facilitate overseas hedging for corporate clients with commodity or freight exposure, expanding risk management options. This reduces reliance on domestic markets and aligns with global practices. Banks must strengthen due diligence to verify exposure and avoid speculative use. Gold hedging is channeled through IFSC, boosting that ecosystem.
What you must do
- Update internal policies to include eligibility checks for direct/indirect commodity and freight exposure.
- Train staff on new definitions and permitted products (futures, options, swaps, structured products).
- Establish verification procedures for exposure, hedge quantity, and tenor before approving remittances.
- Ensure gold hedging requests are routed only to IFSC exchanges recognized by IFSCA.
- Review annual list updates for indirect exposure commodities (Al, Cu, Pb, Zn, Ni, Sn).
Who it affects
Authorised Dealer Category I Banks, Corporate entities (residents other than individuals) with commodity price or freight risk, Oil refiners and shipping companies, IFSC-based exchanges and intermediaries
Can individuals hedge commodity price risk under this direction?
No. Eligible entities are defined as residents other than individuals, so individuals cannot directly use this facility.
What commodities are eligible for indirect exposure hedging?
Only aluminium, copper, lead, zinc, nickel, and tin are eligible for indirect exposure. This list will be reviewed annually.
Where can gold price risk be hedged?
Gold hedging is permitted only on exchanges in the International Financial Services Centre (IFSC) recognized by the IFSCA, not in other overseas markets.