The Reserve Bank has decided to postpone the implementation of its directives regarding exchange traded currency derivatives (ETCD) linked to the rupee by one month to May 3, citing feedback from stakeholders.
Initially slated to be effective from April 5, 2024, as per a circular issued on January 5 titled 'Risk Management and Inter-Bank Dealings Hedging of Foreign Exchange Risk,' the Reserve Bank of India (RBI) announced the deferment in a statement, reaffirming the consistency of its regulatory framework for ETCDs over time, emphasizing no change in policy approach.
This decision follows concerns raised regarding participation in the ETCD market in response to the January circular.
Brokers had instructed clients to close existing positions in currency derivatives by April 4, 2024, before market closure.
The RBI clarified that the circular outlines the Master Direction, and the existing regulatory framework for participation in INR-linked ETCDs without alteration.
Participants with valid underlying contracted exposures can continue to engage in ETCDs involving the INR, up to a limit of USD 100 million, without requiring documentary evidence of the underlying exposure, as before.
The regulatory framework for INR-linked ETCD participation is governed by the provisions of the Foreign Exchange Management Act (FEMA), 1999, and its regulations.
This mandates that currency derivative contracts involving the INR, whether over-the-counter (OTC) or exchange traded, are permissible solely for hedging exposure to foreign exchange rate risks.
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