Emerging Markets Rates and Currencies Handbook

55 Citi | Emerging Markets Currencies Handbook 2021 India Early Maturity : Permitted, gross settlement. The deal is settled at the original deal rate and the swap points are debited/credited separately. Transactions for value spot or tomorrow are on a deliverable basis. Cancellation or rollover of such transactions is not permissible. In case of a cancellation, losses are passed to the client while gains are withheld. Documentation Requirements Product specific FX Spot • KYC + Onboarding. • No documents required at the time of booking. However, the deal has to be settled on delivery-basis. FX Forwards/derivatives • KYC + Onboarding. • Board resolution/Dealing mandate. • ISDA, CSA (as applicable). Users can undertake execution of foreign exchange derivatives to hedge anticipated exposures and contracted exposures. Anticipated exposures : An exposure to the exchange rate of INR against a foreign currency on account of permissible current and capital account transactions, which are expected to be entered into the future. • Basic information around the nature of exposure being hedged to be provided at the time booking the derivative contract. • Net gains (gains over and above losses if any) on contracts booked to hedge an anticipated exposure shall be passed on to the hedging entity only at the time of the cash flow of the anticipated transaction. In case of part delivery, net gains will be transferred on a pro-rate basis. • Monitoring of net gains or losses to be done on a contract basis. Contracted exposures : An exposure to the exchange rate of INR against a foreign currency on account of permissible current and capital account transactions, which have already been entered into. • Evidence of underlying exposure to be provided within 15 calendar days of booking the hedge. • No restriction on passing of gains on cancellation, subject to provision of required underlying documentation. Special Dispensation : Hedging users are allowed to book derivative contracts up to USD 10 million equivalent of notional outstanding at any point of time without the need to establish the existence of underlying exposure. Users are classified into retail or non-retail users and eligible derivative products available for hedging is dependent on this user classification. The following users shall be eligible to be classified as non-retail users: • All entities regulated by a financial sector regulator subject to general or special permission of the concerned regulator. • Exim Bank, NABARD, NHB and SIDBI. • Companies with a minimum net worth of Rs 500 crores. • Persons resident outside India other than individuals. Any user who is not eligible to be classified as a non-retail user shall be classified as a retail user. Any user who is otherwise eligible to be classified as a ‘non-retail’ user shall have the choice to be classified as a ‘retail’ user by market-makers. Retail Users • Eligible products: Forwards, purchase of European call and put options, purchase of European call and put spreads, covered options against underlying docs and swaps. Non-Retail Users • Eligible products: All eligible products for Retail users and any derivative contract provided that the potential loss from the derivative transaction to the user, in any scenario, does not exceed the loss that the user would face if he had left the position unhedged. • Domestic non-retail corporates having an INR liability may swap it into a foreign currency liability through a currency swap. Trade flows Trade transactions have to be supported with underlying documents. Payment Checklist: • Trade import payments. - Payment/debit instruction. - Commercial Invoice details. - Additional documents may be required depending on trade terms. • Payment for import of services — A2. - A2 form. - Payment/debit instruction. - Invoice copy. - Tax declarations (15 CA/CB). - Other documents depending on the nature of payment (dividend, royalty, technical fees, etc.).