Reserve Bank Of India
A.P. (DIR Series) Circular No. 18
August 1, 2013
To,
All Category - I Authorised Dealer Banks
Madam / Sir,
Risk Management and Inter-bank Dealings
Attention of Authorised Dealers Category – I (AD Category I) banks is invited to
AP (DIR) Circular No. 121 dated June 26, 2013 wherein it was clarified that if
an FII wishes to hedge the Rupee exposure of one of its sub-account holders, it
should be done on the basis of a mandate from the sub-account holder for the
purpose and that the AD bank should verify the same along with the eligibility
of the contract vis-a-vis the market value of the securities held in the
concerned sub-account.
- In this context, the Reserve Bank has been receiving enquiries as to the
applicability of the clarifications issued in the aforesaid circular to
Participatory Notes(PN) /Overseas Derivative Instruments(ODI) issued by the
FIIs. It is therefore clarified that if an FII wishes to enter into a hedge
contract for the exposure relating to that part of the securities held by it
against which it has issued any PN/ODI, it must have a mandate from the PN/ODI
holder for the purpose. Further, while AD Category bank is expected to verify
such mandates, in cases where this is rendered difficult, they may obtain a
declaration from the FII regarding the nature/structure of the PN/ODI
establishing the need for a hedge operation and that such operations are being
undertaken against specific mandates obtained from their clients.
- AD category banks may bring the content of this circular to the notice of
their constituents.
- 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,
(Rudra Narayan Kar)
Chief General Manager-in-Charge
RBI/2013-14/169