Risk Management and Inter-Bank Dealings – Simplified Hedging Facility

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..... t and Inter-Bank Dealings dated July 5, 2016, as amended from time to time, and the announcement made in the Statement on Developmental and Regulatory Policies Reserve Bank of India dated August 02, 2017 (para 7) on the simplified hedging facility 2. The scheme of simplified hedging facility was first announced by the RBI in August 2016 and the draft scheme was released on April 12, 2017. The facility is being introduced with a view to simplify the process for hedging exchange rate risk by reducing documentation requirements, avoiding prescriptive stipulations regarding products, purpose and hedging flexibility, and to encourage a more dynamic and efficient hedging culture. 3. Necessary amendments ( Notification No. FEMA 388/2017-RB d .....

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..... 1999 1 . Products: Any Over the Counter (OTC) derivative or Exchange Traded Currency Derivative (ETCD) permitted under FEMA, 1999 . Cap on Outstanding Contracts: USD 30 million, or its equivalent, on a gross basis. Designated Bank: Any Authorised Dealer Category-I (AD Cat-I) bank designated as such by the user. Operational Guidelines, Terms and Conditions i. The user shall appoint an AD Cat-I bank as its Designated Bank . The designated bank will assess the hedging requirement of the user and set a limit up to the stipulated cap on the outstanding contracts. ii. If hedging requirement of the user exceeds the limit in course of time, the designated bank may re-assess and, at its discretion, extend the limit up t .....

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..... booked under other available hedging facilities. x. Users booking contracts under this facility shall not book contracts under any other facility in OTC or ETCD market except as provided in para (ix). xi. At the end of each financial year, the user will provide the designated bank with a statement signed by the head of finance or the head of the entity, to the effect that, Hedge contracts booked in both OTC and ETCD market, under this facility, are backed by underlying exchange rate exposures, either contracted or anticipated. The exposures underlying the hedge contracts booked under this facility are not hedged under any other facility. xii. On being appointed, the designated bank shall report the details of the users .....

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