RBI/2015-16/232
A.P. (DIR Series) Circular No. 28
November 5, 2015
To,
All Authorised Dealer Category – I banks
Madam / Sir,
Risk Management & Inter-Bank Dealings: Relaxation of facilities for
residents for hedging of foreign currency borrowings
Attention of Authorised Dealers Category-I (AD Category-I) banks is invited
to the Foreign Exchange Management (Foreign Exchange Derivative Contracts)
Regulations, 2000 dated May 3, 2000 (Notification No.FEMA/25/RB-2000 dated May
3, 2000) as amended from time to time and
A.P. (DIR Series) Circular No. 32
dated December 28, 2010 containing Comprehensive Guidelines on Over the Counter
(OTC) Foreign Exchange Derivatives and Overseas Hedging of Commodity Price and
Freight Risks, as amended from time to time.
- Under the existing guidelines, residents having a long term foreign
currency liability in terms of Foreign Exchange Management (Borrowing or Lending
in Foreign Exchange) Regulations, 2000,
FEMA 3/2000-RB, dated May 3, 2000, as
amended from time to time and rules, regulations and directions issued thereunder, are permitted to hedge exchange rate and/or interest rate risk
exposure thereof by undertaking a foreign currency-INR swap to move from a
foreign currency liability to a rupee liability with an AD Cat-I bank subject to
the operational guidelines, terms and conditions as mentioned in the above
circular.
- With a view to facilitating hedging of long term foreign currency borrowings
by residents, it has been decided to permit them to enter in to FCY-INR swaps
with Multilateral or International Financial Institutions (MFI/IFI) in which
Government of India is a shareholding member subject to the following terms and
conditions:
- Such swap transactions shall be undertaken by the MFI / IFI concerned on a
back-to-back basis with an AD Category-I bank in India.
- AD Category-I banks shall face, for the purpose of the swap, only those
Multilateral Financial Institutions (MFIs) and International Financial
Institutions (IFIs) in which Government of India is a shareholding member.
- The FCY-INR swaps shall have a minimum tenor of three years. All other
operational guidelines, terms and conditions relating to FCY-INR swaps as laid
down in
A.P. (DIR Series) Circular No. 32 dated December 28, 2010, as amended
from time to time, shall apply, mutatis mutandis.
- In the event of a default by the resident borrower on its swap obligations,
the MFI / IFI concerned shall bring in foreign currency funds to meet its
corresponding liabilities to the counterparty AD Cat-I bank in India.
- AD Category-I bank shall report the FCY-INR swaps transactions entered into
with the MFIs / IFIs on a back-to-back basis to CCIL reporting platform,
including details of the foreign currency borrower, in terms of Reserve Bank
circular no. FMD.MSRG.No. 94/02.05.002/2013-14 dated December 4, 2013 on the
reporting platform for OTC Foreign Exchange and Interest Rate Derivatives.
- AD Category – I banks may bring the contents of this circular to the notice
of their constituents and customers concerned.
- 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) and are without prejudice to permissions/approvals, if any, required under
any other law.
Yours faithfully,
(R Subramanian)
Chief General Manager
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