Date: |
07-11-2016
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Notification No: |
RBI/2016-17/110 A.P. (DIR Series) Circular No. 15
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Issuing Authority: |
RBI
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Type: |
A.P.D.(Series) Circulars
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File No: |
RBI/2016-17/110 |
Subject: |
External Commercial Borrowings (ECB) – Clarifications on hedging
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RBI/2016-17/110
A.P. (DIR Series) Circular No. 15
November 07, 2016
To
All Category-I Authorised Dealer Banks
Madam / Dear Sir
External Commercial Borrowings (ECB) – Clarifications
on hedging
Attention of Authorized Dealer Category-I (AD Category-I) banks is invited to
paragraphs 2.i and 3 of
A.P. (DIR Series) Circular No.56 dated March 30, 2016 and paragraph
no. 2.5 of Master Direction No.5 dated January 1, 2016 on ‘External Commercial
Borrowings, Trade Credit, Borrowing and Lending in Foreign Currency by
Authorised Dealers and Persons other than Authorised Dealers’ as amended from
time to time, on the provisions of hedging in the ECB framework.
2. With a view to provide clarity on the aforesaid directions and bring
uniformity in hedging practices in the market so as to effectively address
currency risk at a systemic level, the following clarifications are issued:
Coverage: Wherever hedging has been mandated by the RBI, the ECB borrower will
be required to cover principal as well as coupon through financial hedges. The
financial hedge for all exposures on account of ECB should start from the time
of each such exposure (i.e. the day liability is created in the books of the
borrower).
Tenor and rollover: A minimum tenor of one year of financial hedge would be
required with periodic rollover duly ensuring that the exposure on account of
ECB is not unhedged at any point during the currency of ECB.
Natural Hedge: Natural hedge, in lieu of financial hedge, will be considered
only to the extent of offsetting projected cash flows / revenues in matching
currency, net of all other projected outflows. For this purpose, an ECB may be
considered naturally hedged if the offsetting exposure has the maturity/cash
flow within the same accounting year. Any other arrangements/ structures, where
revenues are indexed to foreign currency will not be considered as natural
hedge.
3. The designated AD Category-I bank will have the responsibility of verifying
that 100 per cent hedging requirement is complied with. All other aspects of the
ECB policy shall remain unchanged.
4. AD Category-I banks may bring the contents of this circular to the notice of
their constituents and customers.
5. Relevant paragraph of the Master Direction No. 5 dated January 01, 2016 is
being updated to reflect the changes.
6. The directions contained in this circular have been issued under section
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
(Shekhar Bhatnagar)
Chief General Manager-in- charge
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