RBI permits NRIs access to ETCD market

RBI today allowed NRIs access to the exchange traded currency derivatives (ETCD) market to hedge currency risk arising out of their investments in India, a move aimed at providing them additional heding options.
Currently Non-Residents Indians (NRIs) are permitted to hedge their Rupee currency risk through OTC transactions with AD banks.
"With a view to enable additional hedging products for NRIs to hedge their investments in India, it has been decided to allow them access to the exchange traded currency derivatives market to hedge the currency risk arising out of their investments in India under FEMA, 1999," the RBI said.

The access to ETCD will subject to certain conditions, the central bank added.
NRIs will have to designate bank for the purpose of monitoring and reporting their combined positions in the OTC and ETCD segments.
"NRIs may take positions in the currency futures/ exchange traded options market to hedge the currency risk on the market value of their permissible (under FEMA, 1999) Rupee investments in debt and equity and dividend due and balances held in NRE accounts," the notification said.

Further, the onus of ensuring the existence of the underlying exposure rest with the NRI concerned.
"If the magnitude of exposure through the hedge transactions exceeds the magnitude of underlying exposure, the concerned NRI shall be liable to such penal action as may be taken by Reserve Bank of India under the Foreign Exchange Management Act (FEMA)," the central bank added.

An announcement on permitting NRIs access to ETCD market was made in the Monetary Policy Statement in April last.
Meanwhile, the RBI had delegated further powers to it's Regional Offices to compound the contraventions of FEMA.
The compounding powers in case of delay in filing the Annual Return on Foreign Liabilities and Assets, by all Indian companies which have received FDI in the previous year(s) including the current year has been "delegated to all Regional Offices (except Kochi and Panaji) without any limit on the amount of contravention'.
Kochi and Panaji Regional offices can compound in such contraventions for amount of contravention below Rs 1 crore only.

The contraventions of Rs 1 crore or more under the jurisdiction of Kochi and Panaji Regional Offices will continue to be compounded at Central Office as hitherto, the RBI added.