The Reserve Bank of India has restricted authorised dealers to offering non-deliverable derivative contracts involving the Indian rupee to nonresident users only for hedging. The change removes the previous ability of eligible authorised dealers to offer these contracts without restrictions on purpose and further tightens the INR derivatives framework following earlier restrictions on related-party transactions. Authorised dealers must also maintain a Foreign Exchange Risk Reserve for INR foreign exchange derivatives used to hedge the currency risk of their own assets and liabilities where they purchase foreign currency against INR. The reserve must equal 20% of each contract’s INR equivalent notional amount and be held daily as cash with the Reserve Bank in India until the contract terminates. The requirements apply to contracts undertaken after the directions were issued.
Reserve Bank of India limits INR non-deliverable derivatives to hedging and imposes 20% foreign exchange risk reserve
The Reserve Bank of India has limited INR non-deliverable derivative contracts offered to nonresident users to hedging purposes. Authorised dealers must also hold a cash reserve equal to 20% of the notional amount for specified INR derivatives used to hedge their own currency risk, with the requirements applying to new contracts.