RBI allows non-residents to hedge currency risk with banks

The Reserve Bank of India on Thursday allowed non- residents to hedge currency risk for external commercial borrowings denominated in rupees with Indian banks.

The new guideline aims at mitigating currency risk attached with the rupee borrowings.

RBI had allowed overseas borrowings in the local currency in September.

RBI said micro finance NGOs have been permitted to avail of ECBs designated in rupee, under the automatic route, from overseas organisations

and individuals as per the guidelines.

It has been decided to allow non-residents to hedge their currency risk in respect of ECBs denominated in rupees with banks in India, RBI said in a notification.

Non-residents invest in products like forward foreign exchange contracts, foreign currency-INR options and foreign currency-INR swaps with rupee as the currency.

RBI said the amount and tenor of the hedge should not exceed that of the underlying transaction.

Besides, it should be in consonance with the extant regulations regarding tenor of payment or realisation of the proceeds.