Reserve Bank eases currency hedging norms for FIIs

Earlier, only banks maintaining accounts of FIIs were allowed to act as market makers to FIIs for hedging their currency risk on the market value

Easing norms for foreign investors, the Reserve Bank has allowed FIIs to approach any bank to hedge the currency risk on their stock market investments.

Earlier, only banks maintaining accounts (or designated bank) of FIIs were allowed to act as market makers to Foreign Institutional Investors (FIIs) for hedging their currency risk on the market value.

"It has now been decided to allow FIIs to approach any bank for hedging their currency risk on the market value of entire investment in equity and/or debt in India," RBI has said in a notification.

RBI, however, said these risks may be covered with certain riders.

The eligibility for cover may be determined on the basis of a valuation certificate provided by the designated bank along with a declaration by the FII that its global outstanding hedges and the derivatives contracts cancelled across all banks is within the market value of its investments, RBI said.

The FII should also provide a quarterly declaration to the custodian bank that the total amount of derivatives contract booked across the banks are within the market value of its investment.

The RBI also said the hedges taken with these banks other than the designated banks, have to be settled through the Special Non-Resident Rupee account maintained with the designated bank through RTGS/NEFT.

The Real Time Rross Settlement (RTGS) system, meant for large value transactions, transfers the funds at the time of processing than at some later time while, National Electronics Funds Transfer System (NEFT) settles transactions in hourly batches.