TMI BlogRisk Management and Inter-Bank DealingsX X X X Extracts X X X X X X X X Extracts X X X X ..... ice or correspondent outside India and also to accept deposit kept by a branch or correspondent outside India of an authorised dealer and hold in its books in India. 4. Authorised dealers may bring the contents of this circular to the notice of their constituents concerned. 5. 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). Yours faithfully, Grace Koshie Chief General Manager PART - A RISK MANAGEMENT Section I Facilities for Residents other than authorised dealers: Forward Exchange Contracts A.1(i) Authorised dealers may enter into forward contracts with residents in accordance with the provisions contained in paragraph 1 of Schedule I to Reserve Bank Notification No. FEMA25/RB-2000 dated 3 rd May 2000. (ii) While booking contracts for their constituents, authorised dealers should verify suitable documentary evidence, irrespective of the underlying transaction being a current account transaction or a capital account transaction, to ensure that an exposure exists, to the extent of the amount of cover sought. Full particulars of contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.5 (i) Authorised dealers in India may write cross currency options in accordance with the provisions contained in paragraphs 2 3 of Schedule I to the Reserve Bank Notification No FEMA 25/RB-2000 dated 3rd May 2000. (ii) Option should be written on a fully covered back-to-back basis. The cover transaction may be undertaken with a bank outside India, or an internationally recognized option exchange or another authorised dealer in India. (iii) Authorised dealers desirous of writing options, should obtain one time approval, before undertaking the business, from the Chief General Manager, Exchange Control Department, (Forex Markets Division), Reserve Bank of India, Central Office, Mumbai, 400 001. Hedging of commodity price risk in the International commodity markets A.6 (i) Residents in India, engaged in import and export trade, may hedge the price risk of commodities in the international commodity exchanges/markets. Applications for commodity hedging may be forwarded to the Reserve Bank through the International Banking Division of an authorised dealer giving the details laid down in Schedule III to the Reserve Bank Notification No. FEMA 25/RB-2000 dated 3rd May 2000. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inal maturity and should be marked to market at regular intervals. (d) The net cash flows arising out of these transactions are booked as income and expenditure and reckoned as exchange position wherever applicable. Hedging of Gold Prices A.10 Banks authorised by Reserve Bank to operate the Gold Deposit Scheme may use Exchange-traded and over-the-counter hedging products available overseas to manage the price risk. However, while using products involving options, it may be ensured that there is no net receipt of premium, either direct or implied. Banks, which are allowed to enter into forward Gold contracts in India in terms of the guidelines issued by the Department of Banking Operations and Development (including the positions arising out of inter-bank Gold deals) are also allowed to cover their price risk by hedging abroad in the manner indicated above. PART -B Accounts of Non-resident Banks General B.1(i) Credit to the account of a non-resident bank is a permitted method of payment to non residents and is, therefore, subject to the regulations applicable to transfers in foreign currency. (ii) Debit to the account of a non-resident bank is in effect an i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bilities of Paying and Receiving Banks B.7 In the case of credit to accounts the paying banker should ensure that all Control requirements are met and are correctly furnished in form A1/A2 as the case may be. The receiving banker after ensuring that the funds are eligible for credit should submit form A1/A2 under cover of the R Return. Refund of Rupee Remittances B.8 Requests for cancellation or refund of inward remittances may be complied with without reference to Reserve Bank after satisfying themselves that the refunds are not being made in cover of transactions of compensatory nature. Overdrafts/Loans to Overseas Branches/Correspondents B.9 (i) Banks may permit their overseas branches/ correspondents temporary overdrawals not exceeding Rs.500 lakhs in the aggregate, for meeting normal business requirements. This limit applies to the amount outstanding against all overseas branches and correspondents in the books of all the branches of the bank in India. This facility should not be used to postpone funding of accounts. If overdrafts in excess of the above limit are not adjusted within five days a report should be submitted to the Central Office of Reserve Bank (Fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... balances in foreign currencies up to the levels approved by the Top Management. They are free to manage the surplus in these accounts through overnight placement and investments with their overseas branches/correspondents subject to adherence to the gap limits approved by Reserve Bank. (ii) Banks may invest up to 15% of their unimpaired Tier I capital or US$ 10 million whichever is higher, and the entire amount representing un-deployed foreign currency deposit liabilities in overseas money market instruments and/or debt instruments issued by a foreign state with a residual maturity of less than one year and rated as A-1+/AAA by Standard and Poor or P-1/ Aaa by Moody's or F1+ /AAA by Fitch IBCA. For the purpose of investments in debt instruments other than money market instruments of any foreign state, bank's board may lay down country ratings and country wise limits separately wherever necessary. NOTE : For the purpose of this clause, 'money market instrument' would mean any debt instrument whose life to maturity does not exceed one year as on the date of purchase. (iii) Foreign currency funds representing deposit liabilities may be utilised for: a) .making loans to r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et of taxes) without the prior approval of Reserve Bank. Reports to Reserve Bank C.6 (i) The Head/Principal Office of each authorised dealer should submit to the Chief General Manager, Exchange Control Department (Forex Markets Division), Reserve Bank of India, Central Office, Mumbai 400 001 daily statements of foreign exchange turnover in Form FTD and Gaps position and cash balances in Form GPB as per Annexure II. These statements should be transmitted online through wide area network (ii) The Head/Principal Office of each authorised dealer should submit a statement in duplicate in form BAL giving details of their holdings of all foreign currencies on fortnightly basis so as to reach the Regional Office of Reserve Bank under whose jurisdiction the Head/Principal Office is situated within seven calendar days from the close of the reporting period to which it relates. ANNEXURE I (See paragraph C.2) Guidelines for Foreign Exchange Exposure Limits of Authorised Dealers 1. Coverage For banks incorporated in India, the exposure limits fixed by the Management should be the aggregate for all branches including their overseas branches. For foreign banks, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the limit approved by Reserve Bank. 5. Capital Requirement As prescribed by Reserve Bank from time to time. ANNEXURE II FTD(See Paragraph C.6 ) Statement showing daily turnover of foreign exchange Merchant Inter bank Spot, Cash, Ready, T.T. etc. Forward Cancellation of Forwards Spot Swap Forwards FCY/INR Purchase from Sales to FCY/FCY Purchase from Sales to GPB ( See paragraph C.6 ) Statement showing gaps, position and cash balances US Dollars Balances : IN USD MILLION (Cash Balance + All Investments) Net Open Exchange Position (Rs.) : O/B(+)/O/S(-) IN Rs.CRORE Of the above FCY/INR : IN RS. CRORE AGL maintained : VaR maintained: US DOLLAR MATURITY ..... X X X X Extracts X X X X X X X X Extracts X X X X
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