RBI Allows Gold Hedging via OTC Derivatives in IFSC
Current · Source: Reserve Bank of India · RBI/2024-25/17 · issued 15 Apr 2024 · ~1 min read
Quick answerResident entities can now hedge gold price risk using OTC derivatives in IFSC, in addition to exchange-traded derivatives. This expands hedging flexibility under the existing Master Direction on commodity risk hedging.
The rule, in the simplest words
Indian companies and people (resident entities) can now use special contracts called OTC derivatives (private deals between two parties) in the IFSC (a special finance zone in India) to protect themselves from gold price changes.
Before this rule, they could only use exchange-traded derivatives (standard contracts bought on a public market) in the IFSC for gold price protection.
This new permission is effective immediately, meaning banks and lenders can start offering these OTC gold hedging deals right away.
Banks must update their internal rules and train their staff to handle these new OTC gold contracts properly.
All these OTC deals must follow the existing Master Direction (main rulebook) for hedging commodity price risk.
How it plays out — a real example
A forex & trade-finance officer in Mumbai, Priya, now tells a jewelry maker that instead of only buying gold futures on the IFSC exchange, he can also use a custom OTC derivative (a private contract) with her bank to lock in a gold price for his next shipment. Priya updates her bank's policy manual and trains her team on how to document and report this new OTC option, making sure every deal follows RBI's rules.
What changed
Previously, resident entities could only hedge gold price risk on IFSC exchanges. Now, RBI permits hedging via OTC derivatives in IFSC as well, effective immediately. The Master Direction on hedging commodity price risk has been updated accordingly.
What it means for you
Banks and lenders can offer more tailored gold hedging solutions to clients via OTC derivatives in IFSC, enhancing risk management options. This may increase demand for structured gold products and require banks to update their compliance frameworks for OTC transactions.
What you must do
Update internal policies to include OTC gold derivatives in IFSC under the existing Master Direction.
Train staff on the new OTC hedging option and its compliance requirements.
Review client eligibility and exposure documentation for gold price risk hedging.
Ensure reporting systems capture OTC transactions as per RBI guidelines.
Who it affects
Authorised Dealer Category-I Banks, Resident entities with gold price risk exposure, IFSC-based financial institutions and exchanges
❓ Common questions
Can resident entities now hedge gold price risk using OTC derivatives outside IFSC?
No, the circular only permits OTC derivatives in IFSC, not in other overseas markets.
Does this circular replace the existing Master Direction on commodity hedging?
No, it updates the Master Direction to include OTC derivatives in IFSC as an additional hedging avenue.
📜 Read the original circular — full text as issued by RBI
RBI/2024-25/17
A. P. (DIR Series) Circular No. 01
April 15, 2024
All Authorised Dealer Category – I Banks
Madam / Sir,
Hedging of Gold Price Risk in Overseas Markets
Please refer to Paragraph 2 of the Statement on Developmental and Regulatory Policies announced as a part of the Bi-monthly Monetary Policy Statement for 2023-24 dated February 08, 2024 , regarding hedging of price risk of gold in overseas markets. Attention is also invited to the Master Direction – Foreign Exchange Management (Hedging of Commodity Price Risk and Freight Risk in Overseas Markets) Directions, 2022 .
2. Resident entities were permitted to hedge their exposure to price risk of gold on exchanges in the International Financial Services Centre (IFSC) recognised by the International Financial Services Centres Authority (IFSCA) vide A. P. (DIR Series) Circular No. 19 dated December 12, 2022 . To provide further flexibility to resident entities to hedge their exposures to price risk of gold, it has now been decided to permit resident entities to hedge their exposures to price risk of gold using OTC derivatives in the IFSC in addition to the derivatives on the exchanges in the IFSC, subject to the stipulations set out in the Master Direction – Foreign Exchange Management (Hedging of Commodity Price Risk and Freight Risk in Overseas Markets) Directions, 2022 , as amended from time to time.
3. These instructions shall be applicable with immediate effect. The Master Direction – Foreign Exchange Management (Hedging of Commodity Price Risk and Freight Risk in Overseas Markets) Directions, 2022 has been updated accordingly.
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/2024-25/17 · issued 15 Apr 2024. The plain-English explanation above is BankPulse’s own independent summary.
Ensure reporting systems capture OTC transactions as per RBI guidelines.
📜 Compliance
Update internal policies to include OTC gold derivatives in IFSC under the existing Master Direction.
Train staff on the new OTC hedging option and its compliance requirements.
Review client eligibility and exposure documentation for gold price risk hedging.
Grouped from the action items above — a single circular may involve more than one team.
Worked example & action-note template
Example: if you are a Compliance officer at a bank this circular applies to (Authorised Dealer Category-I Banks, Resident entities with gold price risk exposure, IFSC-based financial institutions and exchanges), your first concrete step on “RBI Allows Gold Hedging via OTC Derivatives in IFSC” is: “Update internal policies to include OTC gold derivatives in IFSC under the existing Master Direction.” (RBI issued this 15 Apr 2024).
Circular: RBI/2024-25/17 -- RBI Allows Gold Hedging via OTC Derivatives in IFSC
Issued: 15 Apr 2024
Action required: Update internal policies to include OTC gold derivatives in IFSC under the existing Master Direction.
Action required: Train staff on the new OTC hedging option and its compliance requirements.
Action required: Review client eligibility and exposure documentation for gold price risk hedging.
Action required: Ensure reporting systems capture OTC transactions as per RBI guidelines.
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=12662&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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