RBI Restricts Overseas Rupee Derivatives To Hedging, Extends 20% Cash Reserve Rule

New Delhi, Oct 13 (KNN) The Reserve Bank of India (RBI) on Monday restricted non-deliverable rupee derivatives for overseas clients to hedging purposes and extended the 20 per cent cash reserve requirement to banks’ own currency hedges.

The measures are part of a series of steps announced since Saturday to support the rupee amid rising oil prices and capital outflows.

RBI Restricts Overseas Rupee Derivatives To Hedging

Banks operating through units in India’s International Financial Services Centre and certain primary dealers can now offer non-deliverable rupee derivatives to non-residents only for hedging, the RBI said.

20 percent Cash Reserve Extended To Banks’ Currency Hedges

The central bank also mandated authorised dealers to maintain a foreign exchange risk reserve for rupee derivative contracts used to hedge currency risks on their own assets and liabilities, reported Business Standard.

The reserve will apply to contracts involving the purchase of foreign currency against the rupee and will equal 20 per cent of the rupee equivalent of each contract’s notional value. 

The amount must be deposited with the RBI in cash daily and maintained until the contract expires.

Non-deliverable derivatives are settled in cash, usually in dollars, without the exchange of rupees.

Rupee Gains As RBI Steps Aim To Curb Pressure

Reuters reported on Monday that banks had asked the RBI to replace the 20 per cent cash deposit requirement for derivatives hedging current-account exposures with a flat fee.

The rupee, which had depreciated more than 6 per cent this year, rose around 1 per cent on Monday following the RBI’s weekend measures.

(KNN Bureau)