What changed
Previously, only persons resident outside India could access INR NDDCs through IFSC Banking Units (IBUs), settled in foreign currency. Now, resident non-retail users can hedge using INR NDDCs via IBUs, with cash settlement in INR. Additionally, NDDC transactions between two AD Cat-I banks or between an AD Cat-I bank and a non-resident can be cash-settled in INR or any foreign currency, offering more flexibility.
What it means for you
This move allows Indian corporates and other non-retail entities to hedge INR exposure more efficiently onshore, reducing reliance on offshore NDDC markets. For banks, it opens new business lines in INR derivatives with residents and simplifies settlement options, potentially increasing liquidity and lowering costs. Lenders must update their risk management frameworks and compliance systems to handle these new contract types and settlement currencies.
What you must do
- Update internal policies and systems to offer INR NDDCs to resident non-retail users through IBUs.
- Ensure cash settlement processes for NDDCs are compliant with INR and foreign currency settlement rules.
- Train staff on revised Master Direction amendments, especially classification of users and settlement flexibility.
- Review and amend existing derivative contracts and documentation to align with new NDDC definitions and settlement options.
Who it affects
AD Cat-I banks operating IFSC Banking Units (IBUs), Resident non-retail users (e.g., corporates, financial institutions) seeking INR hedging, Non-resident entities entering NDDCs with Indian banks, Compliance and risk management teams at AD Cat-I banks
When did this circular take effect?
The circular was issued on June 6, 2023. The source does not specify an effective date for the amendments; banks should refer to the Master Direction as amended from that date.