TMI BlogMaster Circular on Risk Management and Inter-Bank DealingsX X X X Extracts X X X X X X X X Extracts X X X X ..... ger INDEX PART A RISK MANAGEMENT SECTION I Facilities for Persons Resident in India other than Authorised Dealers Category-I..3 SECTION II Facilities for Persons Resident outside India SECTION III Facilities for Authorised Dealers Category-I PART-B ACCOUNTS OF NON-RESIDENT BANKS PART-C INTER-BANK FOREIGN EXCHANGE DEALINGS PART-D REPORTS TO THE RESERVE BANK Annex I Annex II Annex III Annex IV Annex V Annex VI Annex VII Annex VIII Annex IX Annex X Annex XI Annex XII Annex XIII ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , should not be passed on to the customer. In the event of non-submission of the documents by the customer within 15 days on more than three occasions in a financial year, booking of permissible derivative contracts in future may be allowed only against production of the underlying documents, at the time of booking the contract. The products available under this facility are as follows: i) Forward Foreign Exchange Contracts Participants Market-makers - AD Category I banks Users - Persons resident in India Purpose a) To hedge exchange rate risk in respect of transactions for which sale and /or purchase of foreign exchange is permitted under the FEMA 1999, or in terms of the rules/ regulations/directions/orders made or issued there under. b) To hedge exchange rate risk in respect of the market value of overseas direct investments (in equity and loan). i) Contracts covering overseas direct investment (ODI) can be cancelled or rolled over on due dates. If a hedge becomes naked in part or full owing to contraction ( due to price movement/impairment) of the market value of the ODI, the hedge may be allowed to continue until maturity, if the custome ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as one of the currencies, booked by residents in respect of all hedge transactions, if cancelled with one AD Category I bank can be rebooked with another AD Category I bank subject to the following conditions: (i) the switch is warranted by competitive rates on offer, termination of banking relationship with the AD Category I bank with whom the contract was originally booked; (ii) the cancellation and rebooking are done simultaneously on the maturity date of the contract; and (iii) the responsibility of ensuring that the original contract has been cancelled rests with the AD Category I bank who undertakes rebooking of the contract. h) Forward contracts can be rebooked on cancellation subject to condition (i) below. i) The facility of rebooking should not be permitted unless the corporate has submitted the exposure information as prescribed in Annex V. j) Substitution of contracts for hedging trade transactions may be permitted by an AD Category I bank on being satisfied with the circumstances under which such substitution has become necessary. The AD Category I bank may also verify the amount and tenor of the underlying substituted. ii) Cross Currency Opti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent systems, mark to market mechanism, etc. are permitted to run a foreign currency INR options book on prior approval from the Reserve Bank, subject to conditions. AD Category I banks desirous of running a foreign currency-INR options book and fulfilling minimum eligibility criteria listed below, may apply to the Reserve Bank with copies of approval from the competent authority (Board/ Risk Committee/ ALCO), detailed memorandum in this regard, specific approval of the Board for the type of option writing and permissible limits. The memorandum put up to the Board should clearly mention the downside risks, among other matters. Minimum Eligibility Criteria: i. Net worth not less than ₹ 300 crore ii. CRAR of 10 per cent iii. Net NPAs not exceeding 3 per cent of the net advances iv. Continuous profitability for at least three years The Reserve Bank will consider the application and accord a one-time approval at its discretion. AD Category I banks are expected to manage the option portfolio within the Reserve Bank approved risk management limits. f) AD banks may quote the option premium in Rupees or as a percentage of the Rupee/foreign currency notional. g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd be satisfied about the financial soundness of the corporate. Purpose To hedge exchange rate and/or interest rate risk exposure for those having long-term foreign currency borrowing or to transform long-term INR borrowing into foreign currency liability. Operational Guidelines, Terms and Conditions a) No swap transactions involving upfront payment of Rupees or its equivalent in any form shall be undertaken. b) The term long-term exposure means exposures with residual maturity of one year or more. c) The swap transactions, once cancelled, shall not be rebooked or re-entered, by whichever mechanism or by whatever name called. In 2 case of FCY-INR swaps however, where the underlying is still surviving, the client, on cancellation of the swap contract, may be permitted to re‐enter into a fresh swap, to hedge the underlying but only after the expiry of the tenor of the original swap contract that had been cancelled. This flexibility is not permitted for INR-FCY swaps. d) AD Category I banks should not offer leveraged swap structures. Typically, in leveraged swap structures, a multiplicative factor other than unity is attached to the benchmark rate(s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay, stipulate additional safeguards, such as, continuous profitability, higher net worth, turnover, etc depending on the scale of forex operations and risk profile of the users. g) The maturity of the hedge should not exceed the maturity of the underlying transaction and subject to the same the users may choose the tenor of the hedge. In case of trade transactions being the underlying, the tenor of the structure shall not exceed two years. h) The MTM position should be intimated to the users on a periodical basis. vi) Hedging of Borrowings in foreign exchange, which are in accordance with the provisions of Foreign Exchange Management (Borrowing and Lending in Foreign Exchange) Regulations, 2000. Products Interest rate swap, Cross currency swap, Coupon swap, Cross currency option, Interest rate cap or collar (purchases), Forward rate agreement (FRA) Participants Market-makers a) AD Category I banks in India b) Branch outside India of an Indian bank authorized to deal in foreign exchange in India c) Offshore banking unit in a SEZ in India. Users Persons resident in India who have borrowed foreign exchange in accordance with the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... higher for imports. Importers, who have already booked contracts up to previous limit of fifty percent in the current financial year, shall be eligible for difference arising out of the enhanced limit. c) Contracts booked up to 75 percent of the eligible limit mentioned at paragraph (b) (i) and (b) (ii) above may be cancelled with the exporter/importer bearing/being entitled to the loss or gain as the case may be. Contracts booked in excess of 75 percent of the eligible limit mentioned at paragraph (b) (i) and (b) (ii) above shall be on a deliverable basis and cannot be cancelled, implying that in the event of cancellation, the exporter/importer shall have to bear the loss but will not be entitled to receive the gain. d) These limits shall be computed separately for import/export transactions. e) Higher limits will be permitted on a case-by-case basis on application to the Financial Markets Regulation Department, Central Office, Reserve Bank of India. The additional limits, if sanctioned, shall be on a deliverable basis. f) Any contract booked without producing documentary evidence will be marked off against this limit. These contracts once cancelled, are not eligi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ems for validating the past performance limits at pre-deal stage. In addition to the customer declarations, AD Category I banks should also assess the past transactions with the customers, turnover, etc. l) AD Category I banks are required to submit a monthly report (as on the last Friday of every month) on the limits granted and utilised by their constituents under this facility as prescribed in Annex X. 3) Special Dispensation i) Small and Medium Enterprises (SMEs) Participants Market-makers AD Category I. Users Small and Medium Enterprises (SMEs) 3 Purpose To hedge direct and / or indirect exposures of SMEs to foreign exchange risk Product Forward foreign exchange contracts Operational Guidelines: Small and Medium Enterprises (SMEs) having direct and / or indirect exposures to foreign exchange risk are permitted to book / cancel / / roll over forward contracts without production of underlying documents to manage their exposures effectively, subject to the following conditions: a) Such contracts may be booked through AD Category I banks with whom the SMEs have credit facilities and the total forward contracts booked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss the OTC foreign exchange derivatives, are detailed below. In addition to the guidelines under the specific foreign exchange derivative product, the general instructions should be followed scrupulously by the users (residents in India other than AD Category I banks) and the market makers (AD Category I banks). a) In case of all forex derivative transactions [except INR- foreign currency swaps i.e. moving from INR liability to foreign currency liability as in section B para I(1)(iv)] is undertaken, AD Category I banks must take a declaration from the clients that the exposure is unhedged and has not been hedged with another AD Category I bank. The corporates should provide an annual certificate to the AD Category I bank certifying that the derivative transactions are authorized and that the Board (or the equivalent forum in case of partnership or proprietary firms) is aware of the same. b) In the case of contracted exposure , AD Category I banks must obtain: i) An undertaking from the customer that the same underlying exposure has not been covered with any other AD Category I bank/s. Where hedging of the same exposure is undertaken in parts, with more than one AD Categor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cept forward contracts) to users as detailed in .No.BP.BC. 44 /21.04.157/2011-12 dated November 2, 2011. i) AD Category I may share with the user the various scenario analysis encompassing both the possible upside as well as the downsides and sensitivity analysis identifying the various market parameters that affect the product. j) The provisions of comprehensive guidelines on Derivatives issued vide DBOD.No.BP.BC. 86/21.04.157/2006-07 dated April 20, 2007 and as amended from time to time are also applicable to forex derivatives. k) Sharing of information on derivatives between banks is mandatory and as detailed vide circular DBOD.No.BP.BC.46/08.12.001/2008-09 dated September 19, 2008 and DBOD.No. BP. BC. 94/ 08.12.001/ 2008-09 dated December 8, 2008. 4. Currency Futures on recognised Stock /New Exchanges As part of further developing the derivatives market in India and adding to the existing menu of foreign exchange hedging tools available to the residents and non-residents, currency futures contracts have been permitted to be traded in recognized stock exchanges or new exchanges, recognized by the Securities and Exchange Board of India (SEBI) in the country. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... members of the currency futures market of the recognized stock exchanges, on their own account and on behalf of their clients, subject to fulfilling the minimum prudential requirements. (iii) AD Category - I banks which do not meet the above minimum prudential requirements and AD Category - I banks which are Urban Co-operative banks or State Co-operative banks can participate in the currency futures market only as clients, subject to approval therefore from the respective regulatory Departments of the Reserve Bank. Position limits i. The position limits for various classes of participants in the currency futures market shall be subject to the guidelines issued by the SEBI. ii. The AD Category - I banks, shall operate within prudential limits, such as Net Open Position (NOP) and Aggregate Gap (AG) limits. Risk Management measures The trading of currency futures shall be subject to maintaining initial, extreme loss and calendar spread margins and the Clearing Corporations / Clearing Houses of the exchanges should ensure maintenance of such margins by the participants on the basis of the guidelines issued by the SEBI from time to time. Surveillance and disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or both trading and clearing, in the exchange traded currency options market shall be subject to the guidelines issued by the SEBI. ii) Banks authorized by the Reserve Bank under section 10 of the Foreign Exchange Management Act, 1999 as AD Category - I bank are permitted to become trading and clearing members of the exchange traded currency options market of the recognized stock exchanges, on their own account and on behalf of their clients, subject to fulfilling the following minimum prudential requirements: a) Minimum net worth of ₹ 500 crores. b) Minimum CRAR of 10 per cent. c) Net NPA should not exceed 3 per cent. d) Made net profit for last 3 years. The AD Category - I banks, which fulfil the prudential requirements, should lay down detailed guidelines with the approval of their Boards for trading and clearing of the exchange traded currency options contracts and management of risks. iii) AD Category - I banks, which do not meet the above minimum prudential requirements and AD Category - I banks, which are Urban Co-operative banks or State Co-operative banks, can participate in the exchange traded currency options market only as clients, subject t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aph (a) above in the ETCD market will have to establish the existence of an underlying exposure. The procedure for the same shall be as under: i. For participants who are exporters or importers of goods and services, the eligible limit up to which they can take appropriate hedging positions in ETCDs will be determined as higher of the (I) average of the last three years export or import turnover, or (II) previous year s export or import turnover. ii. The participants shall furnish, to the trading member of the exchange, a certificate(s) from their statutory auditors regarding the limit(s) mentioned above along with an undertaking signed by the Chief Financial Officer (CFO) to the effect that at all time, the sum total of the outstanding OTC derivative contracts and the outstanding ETCD contracts shall be corresponding to the actual exports or imports contracted, as the case may be. iii. Based on the above certificate, a trading member can book ETCD contracts upto fifty per cent of the eligible limit [as at paragraph (i) above] on behalf of the concerned customer. If a participant wishes to take position beyond the fifty per cent of the eligible limit in the ETCD, it has t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nagement Act, 1999 and those of the Regulations, Directions, etc. framed thereunder. 7. Commodity Hedging Residents in India, engaged in import and export trade or as otherwise approved by the Reserve Bank from time to time, are permitted to hedge the price risk of permitted commodities in the international commodity exchanges/ markets. This facility must not be used in conjunction with any other derivative product. It may be noted that the role of Authorized Dealer banks here is primarily to provide facilities for remitting foreign currency amounts towards margin requirements from time to time, subject to verification of the underlying exposure. In lieu of making a direct remittance towards payment obligations arising out of commodity derivative transactions entered into by customers with overseas counterparties, AD Category I banks may issue guarantees/standby letters of credit to cover these specific payment obligations related to commodity derivatives, subject to the conditions/guidelines in Annex XV. It is clarified that the term Board, wherever used refers to Board of Directors or the equivalent forum in case of partnership or proprietary firms. The facility is divid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nes: a) Hedging may be permitted up to the average of previous three financial years (April to March) actual purchases / sales or the previous year s actual purchases / sales turnover, whichever is higher, of the above commodities. b) AD Category I banks would require the user to submit a Board resolution certifying Board approved policies which define the overall framework within which derivatives activities should be conducted and the risks controlled. c) All other conditions and guidelines as per Annex XI (A B) should be complied with. (ii) ATF (Aviation Turbine Fuel) Participants Users: Actual domestic users of ATF. Facilitators: AD Category I banks Purpose: To hedge economic exposures in respect of ATF based on domestic purchases. Products: Standard exchange traded futures and options (purchases only) in international commodity exchanges. If risk profile warrants may use OTC contracts overseas. Operational Guidelines: a) AD Category I banks should ensure that permission for hedging ATF is granted only against firm orders. b) AD Category I banks should retain necessary documentary evidence. c) AD Category I banks would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the latter s specific recommendations. The details of the application are given in Annex XII. III) Entities in Special Economic Zones (SEZ) Participants Users: Entities in Special Economic Zones (SEZ) Facilitators: AD Category I banks Purpose: To hedge price risk of the imported/exported commodity Products: Standard exchange traded futures and options (purchases only) in international commodity exchanges. If risk profile warrants may use OTC contracts overseas. Operational Guidelines: AD banks may allow entities in the Special Economic Zones (SEZ) to undertake hedging transactions in the overseas commodity exchanges/markets to hedge their commodity prices on export/import, subject to the condition that such contract is entered into on a stand-alone basis. (The term ''standalone'' means the unit in SEZ is completely isolated from financial contacts with its parent or subsidiary in the mainland or within the SEZs as far as its import/export transactions are concerned.) NOTE: The detailed guidelines in respect of Delegated Route and Approval Route are given in the Annex XI and XII respectively. 8. Freight hedging ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e time of permitting the transaction itself and as and when changes made therein. iv) The underlying exposure for the users is detailed under (a) and (b) below: (a) For Domestic oil refining companies: (i) The freight hedging will be on the basis of underlying contracts i.e., import/export orders for crude oil/petroleum products. (ii) Additionally, domestic oil refining companies may hedge their freight risk on anticipated imports of crude oil on the basis of their past performance up to 50 per cent of the volume of actual imports of crude oil during the previous year or 50 per cent of the average volume of imports during the previous three financial years, whichever is higher. (iii) Contracts booked under the past performance facility will have to be regularized by production of underlying documents during the currency of the hedge. An undertaking may be obtained from the company to this effect. (b) For shipping companies: (i) The hedging will be on the basis of owned / controlled ships of the shipping company which have no committed employment. The quantum of hedge will be determined by the number and capacity of these ships. The same may be certified b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d flows. Operational Guidelines, Terms and Conditions a) FPIs may approach any AD Category I bank for hedging their currency risk on the market value of entire investment in equity and/or debt in India as on a particular date subject to the following conditions: i. The eligibility for cover may be determined on the basis of a valuation certificate provided by the designated AD category bank along with a declaration by the FPI to the effect that its global outstanding hedges plus the derivatives contracts cancelled across all AD category banks is within the market value of its investments. ii. The FPI should also provide a quarterly declaration to the custodian bank that the total amount of derivatives contract booked across AD Category banks are within the market value of its investments. iii. The hedges taken with AD banks other than designated AD banks have to be settled through the Special Non-Resident Rupee A/c maintained with the designated bank through RTGS/NEFT. iii. If an FPI 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nor of the swap should not exceed 30 days. iv. The contracts, once cancelled, cannot be rebooked. Rollovers under this scheme will also not be permitted. i) FPIs and other foreign investor are free to remit funds through any bank of its choice for any transaction permitted under FEMA, 1999 or the Regulations / Directions framed thereunder. The funds thus remitted can be transferred to the designated AD Category -I custodian bank through the banking channel. Note should, however, be taken that KYC in respect of the remitter, wherever required, is a joint responsibility of the bank that has received the remittance as well as the bank that ultimately receives the proceeds of the remittance. While the first bank will be privy to the details of the remitter and the purpose of the remittance, the second bank, will have access to complete information from the recipient's perspective. Besides, the remittance receiving bank is required to issue FIRC to the bank receiving the proceeds to establish the fact the funds had been remitted in foreign currency. 2. Terms and conditions for Foreign Portfolio Investors participating in the Exchange Traded Currency Derivatives (ETCD) [Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e. the custodian banks) and other AD banks. If the total value of the contracts exceeds the market value of the holdings on any day, the concerned FPI shall be liable to such penal action as may be laid down by the SEBI in this regard and action as may be taken by Reserve Bank of India under the Foreign Exchange Management Act (FEMA), 1999. The designated custodian bank will be required to monitor this and bring transgressions, if any, to the notice of RBI / SEBI. 3. Facilities for Non-resident Indians (NRIs) Purpose a) To hedge the exchange rate risk on the market value of investment made under the portfolio scheme in accordance with provisions of FERA, 1973 or under notifications issued there under or in accordance with provisions of FEMA, 1999. b) To hedge the exchange rate risk on the amount of dividend due on shares held in Indian companies. c) To hedge the exchange rate risk on the amounts held in FCNR (B) deposits. d) To hedge the exchange rate risk on balances held in NRE account. Products a) Forward foreign exchange contracts with rupee as one of the currencies, and foreign currency-INR options. b) Additionally, for balances in FCNR (B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in India) Non-resident exporter / importer approaches his banker overseas with appropriate documents with a request for hedging their Rupee exposure arising out of a confirmed import or export order invoiced in Rupees. The overseas bank in turn approaches its correspondent in India (i.e. the AD bank in India) for a price to hedge the exposure of its customer along with documentation furnished by the customer that will enable the AD bank in India to satisfy itself that there is an underlying trade transaction (scanned copies would be acceptable). The following undertakings also need to be taken from the customer: That the same underlying exposure has not been hedged with any other AD Category I bank/s in India. If the underlying exposure is cancelled, the customer will cancel the hedge contract immediately. A certification on the end client KYC may also be taken as a one time document from the overseas bank by the AD bank in India. The AD bank in India based on documents received from the overseas correspondent should satisfy itself about the existence of the underlying trade transaction and offer a forward price (no two-way quotes should be given) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the credit analysis done by self / the overseas branch. The amount and tenor of the hedge should not exceed that of the underlying transaction and should be in consonance with the extant regulations regarding tenor of payment / realization of the proceeds. On due date, settlement is to be done through the correspondent bank s Vostro or the AD bank s Nostro accounts. AD banks in India may release funds to the beneficiaries only after sighting funds in Nostro / Vostro accounts. The contracts, once cancelled, cannot be rebooked. The contracts may, however, be rolled over on or before maturity subject to maturity of the underlying exposure. On cancellation of the contracts, gains may be passed on to the customer subject to the customer providing a declaration that he is not going to rebook the contract or that the contract has been cancelled on account of cancellation of the underlying exposure. In case the underlying trade transaction is extended, rollover can be permitted once based on the extension of the underlying trade transaction for which suitable documentation is to be provided by the overseas bank and the same procedure followed as in case of the original ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... waps Operational Guidelines, Terms and Conditions (i) The recognised non-resident lender approaches his overseas bank with appropriate documentation as evidence of an underlying ECB denominated in INR with a request for a swap rate for mobilising INR for onward lending to the Indian borrower. (ii) The overseas bank, in turn, approaches an AD Cat-I bank for a swap rate along with documentation furnished by the customer that will enable the AD bank in India to satisfy itself that there is an underlying ECB in INR (scanned copies would be acceptable). The following undertakings also need to be taken from the customer That the same underlying exposure has not been hedged with any other AD Category- I bank/s in India. If the underlying exposure is cancelled, the customer will cancel the hedge contract immediately. (iii) A KYC certification on the end client shall also be taken by the AD bank in India as a one-time document from the overseas bank. (iv) Based on the documents received from the overseas bank, the AD bank in India should satisfy itself about the existence of the underlying ECB in INR and offer an indicative swap rate to the overseas bank wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er-the-counter hedging products available overseas. Operational Guidelines, Terms and Conditions a) While using products involving options, it may be ensured that there is no net receipt of premium, either direct or implied. b) Authorised banks are permitted to enter into forward contracts with their constituents (exporters of gold products, jewellery manufacturers, trading houses, etc.) in respect of the underlying sale, purchase and loan transactions in gold with them, subject to the conditions specified by the Reserve Bank in this regard. The tenor of such contracts should not exceed six months. 3. Hedging of Capital Users Foreign banks operating in India Product Forward foreign exchange contracts Operational Guidelines, Terms and Conditions a) Tier I capital - i) The capital funds should be available in India to meet local regulatory and CRAR requirements and, hence, these should not be parked in nostro accounts. Foreign currency funds accruing out of hedging should not be parked in Nostro accounts but should remain swapped with banks in India at all times. ii) The forward contracts should be for tenors of one or more years and may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y-I banks may also net / offset their positions in the ETCD market against the positions in the OTC derivatives markets. Keeping in view the volatility in the foreign exchange market, Reserve Bank may however stipulate a separate sub-limit of the NOPL (as a percentage thereof) exclusively for the OTC market as and when required. 5. Participation in the exchange traded currency options market in India Please refer to Part-A Section I, paragraph 5. In continuation of the same: a) AD Category - I banks are permitted to become trading and clearing members of the exchange traded currency options market of the recognized stock exchanges, on their own account and on behalf of their clients, subject to fulfilling the following minimum prudential requirements: i. Minimum net worth of ₹ 500 crores. ii. Minimum CRAR of 10 per cent. iii. Net NPA should not exceed 3 per cent. iv. Made net profit for last 3 years. The AD Category - I banks, which fulfil the prudential requirements, should lay down detailed guidelines with the approval of their Boards for trading and clearing of the exchange traded currency options contracts and management of risks. b) AD Categ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A3 under the relevant Returns. 6. Responsibilities of Paying and Receiving Banks In the case of credit to accounts the paying banker should ensure that all regulatory requirements are met and are correctly furnished in form A1/A2 as the case may be. 7. Refund of Rupee Remittances 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. 8. Overdrafts / Loans to Overseas Branches/ Correspondents (i) AD Category I banks may permit their overseas branches/ correspondents temporary overdrawals not exceeding ₹ 500 lakhs in 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 authorised AD Category I 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 Reserve Bank of India, Financial Markets Regulation Department, Centr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the levels approved by the Board. 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 the Reserve Bank. (ii) AD Category I banks are free to undertake investments in overseas markets up to the limits approved by their Board. Such investments may be made 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 at least as AA (-) by Standard Poor / FITCH IBCA or Aa3 by Moody's. For the purpose of investments in debt instruments other than the 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 include any debt instrument whose life to maturity does not exceed one year as on the date of purchase. (iii) AD Category I banks may also invest the un-deployed FCNR (B) funds in overseas markets in long-term fixed income securities subject to the condition that the maturity of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be used for purposes other than lending in foreign currency to constituents in India and repaid without reference to the Reserve Bank. As an exception to this rule, AD Category I banks are permitted to use borrowed funds as also foreign currency funds received through swaps for granting foreign currency loans for export credit in terms of IECD Circular No 12/04.02.02/2002-03 dated January 31,2003. Any fresh borrowing above this limit shall be made only with the prior approval of the Reserve Bank. Applications for fresh ECBs should be made as per the current ECB Policy. c) The following borrowings would continue to be outside the limit of 100 per cent of unimpaired Tier I capital or USD 10 million (or its equivalent), whichever is higher: i).Overseas borrowings by AD Category I banks for the purpose of financing export credit subject to the conditions prescribed in DBOD Master Circular dated July 2, 2015 on Rupee / Foreign Currency Export Credit Customer Service To Exporters. ii).Subordinated debt placed by head offices of foreign banks with their branches in India as Tier II capital. iii) Capital funds raised/augmented by the issue of Innovative Perpetual Debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per the format indicated in the Annex-IV. The report may also be forwarded by e-mail to fmrdfx@rbi.org.in so as to reach the Department by the 10th of the following month. iv) AD Category-I banks should forward details of exposures in foreign exchange as at the end of every quarter as per the format indicated in Annex-V. ADs should submit this report as per the revised format online only from quarter ended September 2013 through the Extensible Business Reporting Language (XBRL) system which may be accessed at https://secweb.rbi.org.in/orfsxbrl/. AD Category I banks which require login ID / passwords for accessing XBRL system may submit their e-mail addresses and contact numbers to fmrdfx@rbi.org.in . Please note that details of exposures of all corporate clients who meet the prescribed criteria have to be included in the report. The AD banks should submit this report based on bank's books and not based on corporate returns. v) Authorised Dealers Category I should forward details of option transactions (FCY-INR) undertaken on a weekly basis as per the format indicated in Annex VIII. The report may also be forwarded by e-mail to fmrdfx@rbi.org.in so as to reach the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may also be forwarded by e-mail to fmrdfx@rbi.org.in so as to reach the Department by the 10th of the following month. xi) Authorised Dealers should consolidate the data on the transactions undertaken by non-residents under the scheme and submit quarterly reports as per the format indicated in the Annex XIX. The report may also be forwarded by e-mail to fmrdfx@rbi.org.in so as to reach the Department by the 10th of the following month. xii) Authorised Dealers should report on a quarterly basis, doubtful transactions involving frequent cancellation of hedge transactions and / or the underlying trade transactions by non-residents under the scheme as per the format indicated in the Annex XX. The report may also be forwarded by e-mail to fmrdfx@rbi.org.in so as to reach the Department by the 10th of the following month. The reports are to be sent to the Chief General Manager, Reserve Bank of India, Financial Markets Regulation Department, Central Office 23 rd Floor, Mumbai - 400 001 unless otherwise specified. Reports may be sent preferably through e-mail to fmrdfx@rbi.org.in. Annex I [See Part C, Paragraph 2] A. Guidelines for Foreign Exchange Exposure Lim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ges in place which have not already been included under 1(a) or 1(b) (i) and (ii) above. 2. Calculation of the Overall Net Open Position This involves measurement of risks inherent in a bank's mix of long and short position in different currencies. It has been decided to adopt the shorthand method which is accepted internationally for arriving at the overall net open position. Banks may, therefore, calculate the overall net open position as follows: i. Calculate the net open position in each currency (paragraph 1 above). ii. Calculate the net open position in gold. iii. Convert the net position in various currencies and gold into Rupees in terms of existing RBI / FEDAI Guidelines. All derivative transactions including forward exchange contracts should be reported on the basis of Present Value (PV) adjustment. iv. Arrive at the sum of all the net short positions. v. Arrive at the sum of all the net long positions. Overall net foreign exchange position is the higher of (iv) or (v). The overall net foreign exchange position arrived at as above must be kept within the limit approved by the bank s Board. Note : Authorised Dealer banks should report a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... / options traded in exchanges will form part of the NOP-INR. d. As regards option position, any excesses on account of large option Greeks during volatile market closing / revaluations may be treated as technical breaches. However, such breaches are to be monitored by the banks with proper audit trail. Such breaches should also be regularized and ratified by appropriate authorities (ALCO / Internal Audit Committee). B. Aggregate Gap Limits (AGL) i. AGL may be fixed by the boards of the respective banks and communicated to the Reserve Bank immediately. However, such limits should not exceed 6 times the total capital (Tier I and Tier II capital) of the bank. ii. However, Authorised Dealers which have instituted superior measures such as tenor wise PV01 limits and VaR to aggregate foreign exchange gap risks are allowed to fix their own PV01 and VaR limits based on their capital, risk bearing capacity etc. in place of AGL and communicate the same to the Reserve Bank. The procedure and calculation of the limit should be clearly documented as an internal policy and strictly adhered to. Annex II [see Part D, paragraph (i)] Reporting of Forex Turnover Data ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osition, if any. Formats of FTD and GPB Statements FTD Statement showing daily turnover of foreign exchange dated Merchant Inter bank Spot, Cash, Ready, T.T. etc. Forwards Cancellation of Forwards Spot Swap Forwards FCY/INR Purchase from Sales to FCY/FCY Purchase from Sales to GPB Statement showing gaps, position and cash balances as on .. Foreign Currency Balances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Coupon swaps Foreign currency options Interest rate caps or collars (Purchases) Forward rate agreements Any other product as permitted by Reserve Bank from time to time Annex VI [See Part A Section 1 paragraph 2(g)(ii)] Format of Declaration of amounts booked/cancelled under Past Performance facility [On letterhead of the Company] Date : To, (Name and address of the Bank) Dear Sir, Sub : Declaration of amounts booked/cancelled under Past Performance facility We refer to the facility of booking of Forward or Option Contracts involving Foreign Exchange, based on the past performance facility with Authorised Dealer Category I Banks (AD Category I Banks), more specifically in relation to the undertaking submitted by us to you, dated [ ] in this regard ( Undertaking ). In accordance with the said Undertaking, we h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Export Import Export Import Export Import Year 1 Year 2 Year 3 Yours faithfully, For XXXXXX (Chief Financial Officer) (Company Secretary) Annex VIII [see Part D , paragraph (v)] FCY/Rupee Option transactions [For the week ended__________________] A. Option Transaction Report Sr. no Trade date Client/ C-party Name Notional Option Call/ Put Strike Maturity Premium Purpose* ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This report should be prepared for a range of 150 paise around current spot level. Cumulative positions to be given. All amounts in USD million . When the bank owns an option, the amount should be shown as positive. When the bank has sold an option, the amount should be shown as negative. All reports may be sent via e-mail by market-makers to fmrdfx@rbi.org.in. Reports may be prepared as of every Friday and sent by the following Monday. Annex IX [See Part C, paragraph 5 (a)] Overseas foreign currency borrowings Report as on .. Amount (in equivalent USD* Million) Bank (SWIFT code) Unimpaired Tier-I capital as at the close of previous quarter. Borrowings in terms of PartC para 5 (a) of Maste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Number of customers availing past performance facility as on date of report : - Notes: 1. The position of the bank as a whole shall be indicated. 2. Amounts in columns 2, 3, 4 and 5 should be cumulative positions over the year. Outstanding amounts at the end of each financial year shall be carried over and taken into account in the next year s limit and therefore shall be included while computing the eligible limits for the next year. Annex XI [See Part A, Section I, paragraph 5 A (i)] A. Hedging of Commodity Price Risk in the International Commodity Exchanges/ Markets 1. AD Category I banks can grant permission to companies to hedge the price risk in respect of any commodity (except gold, platinum and silver) in the international commodity exchanges/ markets. Reserve Bank retains the right to withdraw the permission granted to any bank, if considered necessary. 2. Before permitting corporates to undertake hedge transactions, authorized dealer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r commodity hedging and the name of the commodity hedged. 6. Applications from customers to undertake hedge transactions not covered under the delegated authority may continue to be forwarded to the Reserve Bank by the Authorised Dealers Category I, for approval. Conditions/ Guidelines for undertaking hedging transactions in the international commodity exchanges/ markets 1. The focus of hedge transactions shall be on risk containment. Only off-set hedge is permitted. 2. All standard exchange traded futures and options (purchases only) are permitted. If the risk profile warrants, the corporate/firm may also use OTC contracts. It is also open to the Corporate/firm to use combinations of option strategies involving a simultaneous purchase and sale of options as long as there is no net inflow of premium direct or implied, subject to the guidelines detailed in Annex XVII. Corporates/firms are allowed to cancel an option position with an opposite transaction with the same broker. 3. The corporate/firm should open a Special Account with the Authorised Dealer Category-I bank. All payments/receipts incidental to hedging may be effected by the Authorised Dealer Category-I t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used by the customer as laid down in Para 8.3 of 'Comprehensive Guidelines on Derivatives' issued vide our circular No.BP.BC. 44 /21.04.157/2011-12 dated November 2, 2011. Annex XII Approval Route Residents in India, engaged in import and export trade or as otherwise approved by Reserve Bank from time to time, may hedge the price risk of all commodities in the international commodity exchanges/markets. Applications for commodity hedging of companies/ firms which are not covered by the delegated authority of Authorised Dealers Category I may be forwarded to the Reserve Bank for consideration through the International Banking Division of an AD bank along with specific recommendation giving the following details: 1. A brief description of the hedging strategy proposed, namely: description of business activity and nature of risk, instruments proposed to be used for hedging, names of commodity exchanges and brokers through whom risk is proposed to be hedged and credit lines proposed to be availed. The name and address of the regulatory authority in the country concerned may also be given, size/average tenure of exposure and/or total turnover in a y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Name of the AD Category I bank: Signature of the Authorised official: Date : Stamp : Annex XIV [see Part D, paragraph (x)] Statement Details of Forward Contracts booked and cancelled under Self-declaration For the Quarter ended Category Forward Contracts Booked Forward Contracts Cancelled During the Quarter Cumulative total-Year to Date During the Quarter Cumulative total-Year to Date SMEs Individuals Firms / Companies Name of the AD Category-I bank: Signature of the Authorised Officials : Date : Stamp : Annex XV [A. P. (DIR Series) Circular No. 15, dated October 29, 2007 A.P. (DIR Seri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The issuing bank shall have a Board approved policy on the nature and extent of exposures that the bank can take for such transactions and should be part of the credit exposure of the customers. The exposure should also be assigned risk weights, for capital adequacy purposes as per the extant provisions. 3. The standby letter of credit / bank guarantee may be issued for the specific purpose of payment of margin money in respect of approved commodity hedging activities of the company. 4. The standby letter of credit / bank guarantee may be issued for an amount not exceeding the margin payments made to the specific counterparty during the previous financial year. 5. The standby letter of credit / bank guarantee may be issued for a maximum period of one year, after marking a lien on the non-funded facility available to the customer (letter of credit / bank guarantee limit). 6. The bank shall ensure that the guidelines for overseas commodity hedging have been duly complied with. 7. The bank shall ensure that broker's month-end reports duly confirmed /countersigned by corporate's financial controller have been submitted. 8. Brokers' month end reports shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... porter/importer is an Individual) Registered Address (Permanent Address if non-resident exporter / importer is an Individual) Name of the non-resident exporter s/importer s Bank Non-resident exporter s / importer s Bank Account No. Period of banking relationship with the non-resident exporter/importer * Passport No., Social Security No, or any Unique No. certifying the bonafides of the non-resident exporter/importer as prevalent in the Non-resident exporter s/ importer s country We confirm that all the information furnished above is true and accurate as provided by the overseas remitting bank of the non-resident exporter/importer. (Signature of the Authorised Official of the AD bank) Date : Place: Stamp : Annex XIX Reporting of Derivative transactions undertaken by non-resident importer / exporter for the quarter ended . Name of the AD Category I Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... December 19, 2005 12. Notification No. FEMA 147/2006-RB March 16, 2006 13. Notification No. FEMA 148/2006-RB March 16, 2006 14. Notification No. FEMA 159/2007-RB September 17, 2007 15. Notification No. FEMA 177/2008-RB August 1, 2008 16. Notification No. FEMA 191/2009-RB May 20, 2009 17. Notification No. FEMA 201/2009-RB November 5, 2009 18. Notification No. FEMA 210/2010-RB July 19, 2010 19. Notification No. FEMA 226/2010-RB March 16, 2012 20. Notification No. FEMA 240/2010-RB September 25, 2012 21 Notification No. FEMA 286/2013-RB September 5, 2013 22 Notification No. FEMA 288/2013-RB September 26, 2013 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... May 08, 2007 23 A.P.(DIR Series) Circular No.66 May 31, 2007 24 A.P.(DIR Series) Circular No.76 June 19,2007 25 A.P.(DIR Series) Circular No.15 October 29 ,2007 26 A.P.(DIR Series) Circular No.17 November 6, 2007 27 A.P.(DIR Series) Circular No.47 June 3, 2008 28 A. P. (DIR Series) Circular No. 05 August 6, 2008 29 A.P.(DIR Series) Circular No.23 October 15, 2008 30 A. P. (DIR Series) Circular No.35 November 10, 2008 31 A.P.(DIR Series) Circular No.50 February 4, 2009 32 A.P.(DIR Series) Circular No.27 January 19, 2010 33 A.P.(DIR Series) Circular No.05 July 30, 2010 34 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IR Series) Circular No. 61 October 10, 2013 58 A.P. (DIR Series) Circular No. 92 January 13, 2014 59 A.P. (DIR Series) Circular No. 96 January 20, 2014 60 A.P. (DIR Series) Circular No. 114 March 27, 2014 61 A.P. (DIR Series) Circular No. 119 April 7, 2014 62 A.P. (DIR Series) Circular No. 135 May 27, 2014 63 A.P. (DIR Series) Circular No. 147 June 20, 2014 64 A.P. (DIR Series) Circular No. 148 June 20, 2014 65 A.P. (DIR Series) Circular No. 28 September 8, 2014 66 A.P. (DIR Series) Circular No. 34 September 30, 2014 67 A.P. (DIR Series) Circular No.58 January 14, 2015 68 A.P. (DIR Series) Circular No.78 ..... 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