Risk Management and Inter-bank
Dealings: Operational flexibility for Indian subsidiaries of Non-resident
Companies
RBI/2016-17/254 March
21, 2017 To, Madam / Sir, Risk Management and Inter-bank
Dealings: Operational flexibility for Indian subsidiaries of Non-resident
Companies Attention of Authorised Dealers
Category – I (AD Category – I) banks is invited to the Foreign Exchange
Management (Foreign Exchange Derivative Contracts) Regulations, 2000 dated
May 3, 2000 (Notification No. FEMA. 25/RB-2000 dated May 3, 2000) issued
under clause (h) of sub-section (2) of Section 47 of FEMA, 1999 (Act 42 of
1999), as amended from time to time and Master Direction on Risk Management
and Inter-Bank Dealings dated July 5, 2016, as amended from time to time. 2. With a view to providing
operational flexibility to multinational entities and their Indian
subsidiaries exposed to currency risk arising out of current account
transactions emanating in India, the extant hedging guidelines have been
amended as per the terms and conditions in the Annex I to this
circular. An announcement to this effect was made in the Statement on
Developmental and Regulatory Policies of Reserve Bank of India dated October
4th, 2016 (para. 9). 3. Necessary amendments (Notification
No.FEMA No.384/2017-RB dated March 17, 2017) to Foreign Exchange Management
(Foreign Exchange Derivatives Contracts) Regulations, 2000 (Notification No.
FEMA.25/RB-2000 dated May 3, 2000) (Regulations) have been notified in the
Official Gazette vide G.S.R.No.260 (E) dated March 17, 2017 a copy of which
is given in the Annex II to this circular. These regulations have
been issued under clause (h) of sub-section (2) of Section 47 of FEMA, 1999
(42 of 1999). 4. AD Cat-I banks may bring the
contents of this circular to the notice of their constituents and customers. 5. The directions contained in
this circular have been issued under Sections 10(4) and 11(1) of the Foreign
Exchange Management Act, 1999 (42 of 1999) and are without prejudice to
permissions/ approvals, if any, required under any other law. Yours
faithfully (T
Rabi Sankar) [Annex
I to A.P. (DIR Series) Circular No. 41 dated March 21, 2017] Operational
flexibility for Indian subsidiaries of Non-resident Companies 1. Purpose 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 (MNCs). 2. Users Non-resident parent of an Indian
subsidiary or its centralised treasury or its regional treasury outside
India. 3. Products All FCY-INR derivatives, OTC as
well exchange traded that the Indian subsidiary is eligible to undertake as
per FEMA, 1999 and Regulations and Directions issued thereunder. 4. Operational Guidelines, Terms
and Conditions for hedging i.
The
transactions under this facility will be covered under a tri-partite
agreement involving the Indian subsidiary, its non-resident parent / treasury
and the AD 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. The ISDA agreement between the AD bank and the
non-resident entity will be distinct from this agreement. ii.
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. iii.
The AD
Bank may obtain KYC/ AML certification on the lines of the format in Annex
XVIII of the Master Direction on Risk Management and Inter Bank Dealings, as
amended from time to time. iv.
The
non-resident entity may approach an AD Cat-I 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. v.
The
non-resident entity may contract any product either under the contracted
route or on past performance basis, which the Indian subsidiary is eligible
to use. vi.
The
Indian subsidiary shall be responsible for compliance with the rules,
regulations and directions issued under FEMA 1999 and any other laws/rules/regulations
applicable to these transactions in India. vii.
The
profit/ loss of the hedge transactions shall be settled in the bank account
and books of accounts of the Indian subsidiary. The AD bank shall obtain from
the Indian subsidiary an annual certificate by its Statutory Auditors to this
effect. viii.
The
concerned AD Bank shall be responsible for monitoring all hedge transactions
(OTC as well as exchange traded) booked by the non-resident entity and
ensuring that the Indian subsidiary has the necessary underlying exposure for
the hedge transactions. ix.
AD banks
shall report hedge contracts booked under this facility by the non-resident
related entity to CCIL’s trade repository with a special identification tag. [Annex
II to A.P. (DIR Series) Circular No. 41 dated March 21, 2017] RESERVE
BANK OF INDIA Notification No.FEMA.384/RB-2017 March
17, 2017 Foreign
Exchange Management (Foreign Exchange Derivative Contracts) In exercise of the powers
conferred by clause (h) of sub-section (2) of section 47 of the Foreign
Exchange Management Act, 1999 (42 of 1999), the Reserve Bank hereby makes the
following amendments in the Foreign Exchange Management (Foreign Exchange
Derivative Contracts) Regulations, 2000 (Notification No. FEMA 25/RB-2000
dated May 3, 2000), namely:- 1. Short Title and Commencement (i) These regulations may be
called the Foreign Exchange Management (Foreign Exchange Derivative
Contracts) (Amendment) Regulations, 2017. (ii) They shall be come in to
force from the date of their publication in the Official Gazette. 2. Amendment under Schedule II: In the Foreign Exchange Management (Foreign Exchange
Derivative Contracts) Regulations, 2000 (Notification No. FEMA 25/RB-2000
dated May 3, 2000), in Schedule II, after the existing para 6, the following
shall be added, namely: A non-resident may enter into a
foreign exchange derivative contract with an Authorised Dealer bank in India
to hedge an exposure to exchange risk of and on behalf of its Indian
subsidiary in respect of the said subsidiary’s transactions subject to such
terms and conditions as may be stipulated by the Reserve Bank from time to
time. (T
Rabi Sankar) Footnote:- The principal regulations were
published in the Official Gazette vide GSR No. 411(E) dated May 8, 2000 in
Part II, Section 3, sub-section (i) and subsequently amended vide– GSR No. 756(E) dt. 28.09.2000, Published in the Official Gazette of Government of India – Extraordinary – Part-II, Section 3, Sub-Section (i) dated March 17, 2017- G.S.R.No. 260 (E). |
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