RBI recasts norms on currency hedging for MNCs

The RBI today changed norms to provide operational flexibility to multinational entities and their Indian subsidiaries exposed to currency risks arising out of current account transactions in the country.
The extant hedging guidelines have been amended to provide operational flexibility for booking derivative contracts to hedge the currency risk arising out of current account transactions of Indian subsidiaries of multi-national companies.
As per the guidelines, the transactions under the facility will be covered under a tripartite agreement involving the Indian subsidiary, its non-resident parent / treasury and the bank.
"This agreement will include the exact relationship of the Indian subsidiary or entity with its overseas related entity, relative roles and responsibilities of the parties and the procedure for the transactions, including settlement," it said.

Further, the non-resident entity should be incorporated in a country that is member of the Financial Action Task Force (FATF) or member of a FATF-Style Regional body.
Under the facility, the non-resident entity can approach a bank directly which handles the foreign exchange transactions of its subsidiary for booking derivative contracts to hedge the currency risk of and on the latter's behalf.
The Indian subsidiary will be responsible for compliance with the rules, regulations and directions issued under FEMA and any other laws applicable to the transactions in India, the guidelines said.