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
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.