Foreigners can hedge risks for rupee-invoiced foreign trade

In an effort to aid hedging of currency risks for non-resident exporters and importers, the Reserve Bank of India (RBI) on Thursday issued norms allowing them to either use overseas banks or those in the country to settle foreign trade transactions invoiced in the Indian rupee.

It had made announcement to this effect in annual monetary and credit policy for 2011-12.

A non-resident exporter or importer can approach his banker overseas with appropriate documents with a request to hedge the rupee exposure arising from confirmed import or export order. The overseas bank will approach its correspondent bank in India for a price to hedge the exposure of its customer along with documentation.

The same underlying exposure can’t be hedged with any other bank in India. If the underlying exposure is cancelled, the customer will have to cancel the hedge contract immediately, RBI said in a communication to banks.

On using banks in India for hedging risks, it said, exporters and importers could also deal directly with banks in India. They can approach the bank in India with a request for forward cover for underlying transaction.