RBI eases foreign currency hedging norms for residents

RBI today allowed residents to enter into foreign currency-rupee swaps with multilateral or international financial institutions in which India is a shareholding member, a move to facilitate hedging of long-term foreign currency borrowings.
Under the existing guidelines, residents having a long term foreign currency liability are permitted to hedge exchange rate and/or interest rate risk exposure thereof by undertaking a swap to move from a foreign currency liability to a rupee liability.
"With a view to facilitating hedging of long term foreign currency borrowings by residents, it has been decided to permit them to enter into FCY-INR swaps with Multilateral or International Financial Institutions (MFI/IFI) in which Government of India is a shareholding member," RBI said.

Such swap transactions, RBI said, can be undertaken by the MFI/IFI concerned on a back-to-back basis with banks.
The swaps should be for a minimum tenor of three years and in case of a default by the borrower on its swap obligations, the MFI/IFI will bring in foreign currency funds to meet its corresponding liabilities to the counter-party bank in India.
Besides, the bank should report about the FCY-INR swaps transactions with the MFIs/IFIs on a back-to-back basis to CCIL reporting platform, including details of the foreign currency borrower.