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Risk Management and Inter Bank Dealings
A.P.
(DIR Series) Circular No. 63 dated 21st December 2002
Attention
of Authorised dealers is invited to A.P. (DIR Series) Circular No. 19 dated
January 24, 2002 and subsequent amendments referred to in the following
paragraphs. It has been decided to permit the following further relaxations:
1.
Foreign Currency - Rupee Swaps: In terms of our circular EC.CO.FMD/
447/ 02.03.75/ 2000-2001 dated November 25, 2001, Authorised dealers are
permitted to offer foreign currency rupee swaps to a person resident in India to
hedge long term exposures subject to the condition that the market access by
Authorised dealers on account of such swaps shall not exceed USD 25 million.
Thereafter, on specific requests, certain banks were permitted higher limits. It
has been decided that such specified limits will not be applicable to swaps
offered to facilitate customers to hedge their foreign exchange exposures.
Accordingly, authorised dealers are free to offer such swaps to customers
subject to overall prudential and risk management guidelines. The specified
limits would, however, continue for swap transactions facilitating customers to
assume a foreign exchange liability, thereby resulting in supply in the market.
Positions arising out of cancellation of swaps by customers need not be reckoned
within the cap.
2.
Investments in Overseas Market: In terms
of A.P. (DIR Series) Circular No.48 dated November 16, 2002, Authorised dealers
were permitted to invest upto 50 per cent of their unimpaired Tier I capital or
USD 25 million, whichever is higher, in overseas money market and/or debt
instruments. It has been decided to withdraw the above caps. Accordingly,
Authorised dealers are now free to undertake investments in overseas markets
subject to the limits approved by the banks� Board of Directors. All other
existing instructions on the subject remain unchanged.
3.
Booking of forward contracts based on past performance: In terms
of our Circular No. EC.CO.FMD/ 453/ 02.03.75/ 2001-02 dated December 1, 2001,
Authorised dealers are permitted to offer forward contracts to their exporter/
importer customers upto the limit/s worked out on the basis of last 3 years�
average import/export performance. This is subject to the condition that at any
point of time forward contracts so booked and outstanding shall not exceed 25
per cent of the eligible limit, within a cap of USD 50 million. It has been
decided to enhance the cap to USD 100 million. Accordingly, Authorised dealers
may permit their customers to book forward contracts upto the eligible limit,
subject to the condition that forward contracts outstanding at any point of time
shall not exceed 25 per cent of the eligible limit, within the cap of USD 100
million. It may be noted that the eligible limits are to be computed separately
for import and export transactions. All other conditions remain unchanged.
4.
Booking and canceling of forward contracts: Authorised
dealers were permitted, vide circulars EC.CO.FMD.790/ 02.03.75/ 2001-02 dated
March 26, 2002 and EC.CO.FMD.2 02.03.75/ 2002-03 dated July 31, 2002, to allow
resident entities to rebook cancelled contracts covering all transactions
subject to certain conditions. While detailed instructions were issued for
calculating the eligible limit, it was indicated that irrespective of the
eligibility, there would be a cap of USD 100 million per financial year for a
customer. It has been decided to withdraw this cap. Accordingly, Authorised
dealers are free to offer this facility of rebooking of cancelled contracts to
all foreign exchange exposures falling due within one year. However, this
facility may be made available only to customers who submit details of exposure
to the authorised dealers as per the revised format enclosed. Forward contracts
booked to cover exposures falling due beyond one year and long-term foreign
currency-rupee swaps, once cancelled, cannot be rebooked. Authorised dealers may
continue to offer this facility without any restrictions in respect of export
transactions.
5.
Hedging of capital of foreign banks: In terms of our circular
No.EC.CO.FMD.6/ 02.03.75/ 2002-03 dated November 20, 2002, foreign banks
operating in India are permitted to hedge their Tier I capital held in Indian
books, subject, inter-alia, to the condition that the hedge transactions are
spread over a period of six months. It has been decided to withdraw this
restriction and banks are now free to make their own decision as regards the
timing of the hedge transactions. All other conditions remain unchanged.
6.
Forward cover for foreign direct investments: In
terms of paragraph 3 of Schedule II to Notification No. FEMA. 25/ RB-2000 dated
May 3, 2002, Reserve Bank may allow a person resident outside India to book
forward contract to hedge the investments made in India since January 1, 1993.
It has been decided to accord general permission to Authorised dealers to offer
such forward contracts to persons resident outside India. Accordingly,
Authorised dealers are free to offer forward contracts to persons resident
outside India subject to verification of the exposure in India. These forward
contracts once cancelled are not eligible to be rebooked.
7.
All the above facilities would be available upto March 31, 2003, subject
to review.
8.
Necessary amendments to the Foreign Exchange Management Regulations, 2000
are being issued separately.
9.
Authorised dealers may bring the contents of this circular to the notice
of their concerned constituents.
10.
The directions contained in this circular have been issued under Section
10(4) and Section 11(1) of the Foreign Exchange Management Act, 1999 (42 of
1999).
Annexure
[A.P.
(DIR Series) Circular No. 63 dated December 21, 2002]
Information
relating to exposures in foreign currency as on 1st April
Name
of the corporate:
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Amount
in USD million equivalent
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Of
col. (1) amounts already hedged
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(1)
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(2)
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i)
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Import transactions due within the year
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@
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�
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ii)
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Non-trade payments falling due within one
year
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�
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�
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iii)
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Non-trade payments falling due beyond one
year
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�
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�
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Note:
Authorised dealers may consolidate the above data for the bank as a whole for
individual corporate and forward a report to Chief General Manager, Exchange
Control Department, Reserve Bank of India, Central Office, Forex Markets
Division, Mumbai-400 001 (copy to Chief General Manager, Department of
External Investments and Operations, Reserve Bank of India, Central Office,
Data Cell, Mumbai -400 001) before 30th
June every year. @ Calculated on
the basis of last three years� average, duly factoring in subsequent major
changes, if any. � Based on actuals.
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