Booking of Forward Contracts - RBI announces liberalisation
With a view to provide greater flexibility to the Small and Medium Enterprises (SME) sector and resident individuals, it has been decided to further liberalise the scope and range of forward contracts to facilitate such entities to hedge their foreign currency exposures on a dynamic basis.
Small and Medium Enterprises (SMEs)
it has been decided to allow AD Category - I banks to permit such entities to book / cancel / rebook / roll over forward contracts without production of underlying documents, subject to the following conditions:
1.Such contracts may be allowed to be booked after ensuring that the entity qualifies as SME as defined by the Rural Planning and Credit Department, Reserve Bank of India vide circular RPCD.PLNS. BC.No.63/06.02.31/2006-07 dated April 4, 2007 .
2.Such contracts may be booked through AD Category - I banks with whom the SMEs have credit facilities and the total forward contracts booked should be in alignment with the credit facilities availed by them for their foreign exchange requirements or their working capital requirements or capital expenditure.
3.AD Category - I bank should carry out due diligence regarding " user appropriateness " and "suitability " of the forward contracts to the SME customers as per Para 8.3 of 'Comprehensive Guidelines on Derivatives' issued vide DBOD.No.BP.BC. 86/21.04.157/2006-07 dated April 20, 2007
4.The SMEs availing this facility should furnish a declaration to the AD Category - I bank regarding the amounts of forward contracts already booked, if any, with other AD Category - I banks under this facility.
SMEs are also permitted to use foreign currency rupee options for hedging their exposures after production of underlying documents or under past performance route.
Resident Individuals
In order to enable resident individuals to manage / hedge their foreign exchange exposures arising out of actual or anticipated remittances, both inward and outward, it has been decided to permit them to book forward contracts, without production of underlying documents, up to a limit of USD 100,000, based on self declaration. The contracts booked under this facility would normally be on a deliverable basis. However, in case of mismatches in cash flows or other exigencies, the contracts booked under this facility may be allowed to be cancelled and re-booked. The notional value of the outstanding contracts should not exceed USD 100,000 at any time. Further, the contracts may be permitted to be booked up to tenors of one year only.