RBI releases draft Directions on Foreign Exchange Dealings of Authorised Persons -Permitted Products / Transactions / Venues
Introduction:
This draft of Directors on Foreign Exchange Dealing with based on Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 dated May 03, 2000.
A Registered Foreign Institutional Investor (FII) may enter into a forward contract with rupee as one of the currencies with an authorised dealer in India to hedge its exposure in India, Provided that –
a. the value of the hedge does not exceed the current market value in respect of investments in debt instruments,
b. the value of the hedge does not exceed 15% of the market value of the equity as at the close of business on 31st March 1999, converted at the rate of US $ 1= Rs.42.43 plus the increase in market value/inflows after 31st March 1999 provided that the forward cover once taken shall be allowed to continue as long as it does not exceed the value of the underlying investment,
c. forward contracts once cancelled shall not be rebooked but may be rolled over on or before the maturity,
d. the cost of hedge is met out of repatriable funds and/or inward remittance through normal banking channel,
e. all outward remittances incidental to hedge are net of applicable Indian taxes.
A non-resident Indian or Overseas Corporate Body may enter into forward contract with rupee as one of the currencies, with an authorised dealer in India to hedge.
a. the amount of dividend due to him/it on shares held in an Indian company.
b. the balances held in Foreign Currency Non-Resident (FCNR) account or Non-Resident External Rupee (NRE) account,
c. the amount of investment made under portfolio scheme in accordance with the provisions of the Foreign Exchange Regulation Act, 1973 or under notifications issued thereunder or is made in accordance with the provisions of the Foreign Exchange Management (Transfer or issue of Security by a Person Resident outside India) Regulations, 2000 and in both cases subject to the terms and conditions specified in the proviso to paragraph 1 of this Schedule
Below are the directors with reference to Permitted Products:
1. Permitted Products / Transactions / Venues
1.1 OTC transactions
‘OTC transactions, or over-the counter transactions, refer to financial transactions that occur directly between two parties without the involvement of a central exchange. This includes trading in various financial instruments such as stocks, bonds, and derivatives.’
(i) An Authorised Dealer may undertake the following foreign exchange transactions with other Authorised Dealers and with its overseas branches / overseas entities / IFSC Banking Units (IBUs) / Offshore Banking Units (OBUs) in Special Economic Zones, for the purpose of hedging its exposures, balance sheet management, market-making and proprietary positions.
a. Foreign exchange transactions permitted to be undertaken between an Authorised Dealer and an user.
b. Placing and accepting deposits in foreign currency as per Foreign Exchange Management (Deposit) Regulations, 2016 (Notification No. FEMA 5(R)/2016-RB dated April 01, 2016), as amended from time to time.
c. Borrowing and lending in foreign currency as per Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 (Notification No. FEMA 3(R)/2018-RB dated December 17, 2018), as amended from time to time.
(ii) An Authorised Dealer may undertake non-deliverable derivative contracts (NDDCs) involving INR with other Authorised Dealers and with overseas entities / IBUs / OBUs in Special Economic Zones either directly or on a back-to-back basis through their overseas branches (in case of foreign banks operating in India, through any branch of the parent bank), IBUs, overseas wholly owned subsidiaries and overseas joint ventures, subject to the following conditions:
a. NDDCs involving INR can be undertaken by an Authorised Dealer Category-I bank, subject to the condition that the Authorised Dealer Category-I bank (or its non-resident parent bank) has an operating IBU;
b. Such transactions may be undertaken by the wholly owned subsidiary / joint venture of Authorised Dealers incorporated in India provided the wholly owned subsidiary / joint venture is a banking entity; and
c. Such transactions may be cash-settled in INR or any foreign currency.
(iii) An Authorised Dealer may undertake foreign exchange derivative contracts and foreign currency interest rate derivative contracts on electronic trading platforms (ETPs) authorised by the Reserve Bank in terms of the Master Direction – Reserve Bank of India (Electronic Trading Platforms) Directions, 2025, dated June 16, 2025, as amended from time to time.
(iv) An Authorised Dealer may undertake transactions on ETPs outside India provided the ETP operator is incorporated/set up in a country which is a member of the Financial Action Task Force (FATF) and the ETP or the transaction is regulated by a financial market regulator that is a member of the Committee on Payments and Market Infrastructures (CPMI) or the International Organization of Securities Commissions (IOSCO).
Provided that in respect of transactions involving INR:
a. Authorised Dealers transact only with non-residents on such ETPs; and
b. The operator of the offshore ETP disseminates information relating to transactions involving INR undertaken on the ETP on its website.
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