| RBI/2007-2008/
A.
P. (DIR Series) Circular No. October
10, 2007 To, All
Authorised Dealer Category - I banks Madam
/ Sir Booking
of Forward Contracts - Liberalisation Attention
of Authorised Dealer Category - I (AD Category - I) banks is invited to
A.
P. (DIR Series) Circular No.19 dated January 24, 2002, A.
P. (DIR Series) Circular No. 63 dated December 21, 2002, A.
P. (DIR Series) Circular No. 26 dated November 1, 2004, A.
P. (DIR Series) Circular No. 22 dated December 13, 2006 and A.
P. (DIR Series) Circular No. 52 dated May 8, 2007, in terms of which persons resident
in India have been allowed to enter into forward contracts on the basis of underlying
exposures. Further, exporters and importers have also been allowed to book forward
contracts on the basis of declaration of exposures and based on past performances,
subject to specified conditions. 2.
As announced in the Annual Policy Statement for the Year 2007-08 (paras 142 and
143), with a view to provide greater flexibility to the Small and Medium Enterprises
(SME) sector and resident individuals, it has been decided to further liberalise
the scope and range of forward contracts to facilitate such entities to hedge
their foreign currency exposures on a dynamic basis. Accordingly, a draft circular
was placed on the website on June 1, 2007 for users' views / comments. Subsequently,
discussions were also held with FEDAI and banks. In the light of feedback now
received from banks, FEDAI, user group, etc. the guidelines have been suitably
modified. Small
and Medium Enterprises (SMEs) (para 142) 3.
In order to enable Small and Medium Enterprises (SMEs), having direct and / or
indirect exposures to foreign exchange risk to manage their exposures effectively,
it has been decided to allow AD Category – I banks to permit such entities to
book / cancel / rebook / roll over forward contracts, subject to the following
conditions: (i)
Such contracts may be allowed to be booked after ensuring that the entity qualifies
as SME as defined by the Rural Planning and Credit Department, Reserve Bank of
India vide circular RPCD.PLNS. BC.No.63/06.02.31/2006-07 dated April 4, 2007.
(ii)
Such contracts may be booked through AD Category – I banks with whom the SMEs
have credit facilities and / or banking relationship and the total forward contracts
booked should be in alignment with the credit facilities availed by them for their
foreign exchange requirements or their working capital requirements or capital
expenditure. (iii)
AD Category – I bank should carry out due diligence regarding "user appropriateness"
and "suitability" of the forward contracts to the SME customers
as per Para 8.3 of 'Comprehensive Guidelines on Derivatives' issued vide DBOD.No.BP.BC.
86/21.04.157/2006-07 dt.April 20, 2007.
(iv) The SMEs availing this facility should furnish a declaration to the AD Category
– I bank regarding the amounts of forward contracts already booked, if any, with
other AD Category – I banks under this facility. 4.
SMEs are also permitted to use foreign currency rupee options for hedging their
exposures. Resident
Individuals (para 143) 5.
In order to enable resident individuals to manage / hedge their foreign exchange
exposures arising out of actual or anticipated remittances, both inward and outward,
it has been decided to permit them to book forward contracts without production
of underlying documents up to a limit of USD 100,000, based on self declaration.
The contracts booked under this facility would normally be on a deliverable basis.
However, in case of mismatches in cash flows or other exigencies, the contracts
booked under this facility may be allowed to be cancelled and re-booked. The notional
value of the outstanding contracts should not exceed USD 100,000 at any time.
Further, the contracts may be permitted to be booked up to tenors of one year
only. 6.
Such contracts may be booked through AD Category I banks with whom the resident
individual has banking relationship, on the basis of an application-cum-declaration
in the format given in Annex I. The AD Category – I banks
should satisfy themselves that the resident individuals understand the nature
of risk inherent in booking of forward contracts and should carry out due diligence
regarding "user appropriateness" and "suitability"
of the forward contracts to such customer. 7.
AD Category – I banks are required to submit a quarterly report to the Chief General
Manager, Reserve Bank of India, Foreign Exchange Department, Central Office, Forex
Markets Division, Central Office Building, Mumbai - 400 001 within the first week
of the following month, as per format given in Annex II. 8.
Necessary amendments to Notification No. 25/2000-RB dated 3rd May 2000
[Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations,
2000] are being issued separately. 9.
AD Category – I banks may bring the contents of this circular to the notice of
their constituents and customers concerned. 10.
The directions contained in this circular have been issued under Section 10(4)
and Section 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and
is without prejudice to permissions/approvals, if any, required under any other
law.
Yours faithfully,
(Salim Gangadharan)
Chief
General Manager
Annex
I [Annex
to A. P. (DIR Series) Circular No. dated October, 2007] Application
cum Declaration for booking of forward contracts up to USD 100,000 by Resident
Individuals
(To be completed by the applicant) I.
Details of the applicant a.
Name ………………………….. b.
Address………………………… c.
Account No…………………….. d.
PAN No…………………………. II.
Details of the foreign exchange forward contracts required 1.
Amount (Specify currency pair) ……………………………… 2.
Tenor …………………………………………………. III.
Notional value of forward contracts outstanding as on date ………. IV.
Details of actual / anticipated remittances 1.
Amount : 2.
Remittance Schedule: 3.
Purpose: Declaration I,
………………. …………(Name of the applicant), hereby declare that the total amount of foreign
exchange forward contracts booked with the ---------------(designated branch)
of ------------------(bank) in India is within the limit of USD 100,000/- (US
Dollar One lakh only) and certify that the forward contracts are meant for undertaking
permitted current and / or capital account transactions. I also certify that I
have not booked foreign exchange forward contracts with any other bank / branch.
I have understood the risks inherent in booking of foreign exchange forward contracts.
Signature
of the applicant (Name)
Place: Date: Certificate
by the Authorised Dealer Category – I bank This
is to certify that the customer …………(Name of the applicant) having PAN No. …….
has been maintaining an account ……..(no.) with us since ……..* We certify that
the customer meets the AML / KYC guidelines laid down by RBI and confirm having
carried out requisite suitability and appropriateness test. Name
and designation of the authorised official: Place:
Signature: Date:
Stamp and seal *
month / year
Annex
II (
A.P. (DIR Serires ) circular No. dated October , 2007)
Statement – Details
of Forward contracts booked and cancelled
Quarter
–
| Category |
Forward
Contracts
Booked
|
Forward
Contracts
Cancelled
|
| During
the
Quarter
|
Cumulative
total
–Year to
Date |
During
the
Quarter
|
Cumulative
total
– Year
to date
|
| SMEs | | | | |
| Individuals | | | | |
Name
of the AD Category – I bank : Signature
of the Authorised official : Date
: Stamp
: |