RBI/2016-17/254 A.P. (DIR Series) Circular No. 41 March 21, 2017 To, All Authorised Dealer Category - I Banks 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) Chief General Manager
[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 -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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 Financial Markets Regulation Department Central Office Mumbai Notification No.FEMA.384/RB-2017 March 17, 2017 Foreign Exchange Management (Foreign Exchange Derivative Contracts) (Amendment) Regulations, 2017 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 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) Chief General Manager 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, GSR No. 264(E) dt. 09.04.2002, GSR No. 579(E) dt. 19.08.2002, GSR No. 222(E) dt. 18.03.2003, GSR No. 532(E) dt. 09.07.2003, GSR No. 880(E) dt. 11.11.2003, GSR No. 881(E) dt. 11.11.2003, GSR No. 750(E) dt. 28.12.2005, GSR No. 222(E) dt. 19.04.2006, GSR No. 223(E) dt. 19.04.2006, GSR No. 760(E) dt. 07.12.2007, GSR No. 577(E) dt. 05.08.2008, GSR No. 440(E) dt. 23.06.2009, GSR No. 895(E) dt. 14.12.2009, GSR No. 635(E) dt. 27.07.2010, GSR No. 608(E) dt. 03.08.2012, GSR No. 799(E) dt. 30.10.2012, G.S.R.No. 330(E) dated 23.05.2013, G.S.R.No. 374(E) dated 02.06.2014, G.S.R.No. 365(E) dated 01.06.2016 and G.S.R.No. 378(E) dated 25.10.2016. 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). |