Emerging Markets Rates and Currencies Handbook
56 Citi | Emerging Markets Currencies Handbook 2021 Export Checklist: • Purpose of export remittance. • Commercial Invoice details. • Transport Document. INR payments are allowed for INR billed transactions. Hedging by Non-resident entities Non-resident entities are permitted to hedge both anticipated and contracted exposures denominated in INR, which are either current account or capital account in nature. Non-resident entities can execute such derivative transactions either directly with an Authorized Dealer bank in India or through its overseas bank (including overseas branches of Authorized Dealer banks in India). Additional Comments Hedge tenor must not exceed underlying maturity. Companies incorporated in India may not transact NDFs (in any currency). Non-resident entities may invoice in INR and related exposures may be hedged in India or outside India. Non-resident parent of an Indian subsidiary or its centralized treasury or its regional treasury outside India, may hedge FX exposure of its Indian subsidiary, through All FCY-INR derivatives, OTC as well exchange traded as eligible per FEMA, 1999. Guidelines for INR Interest Rate Derivatives INR Interest Rate Hedging can be done to mitigate INR interest rate risk either at balance sheet level or at portfolio level or at individual asset or liability level. User Classification Non-retail users shall include entities regulated by the Reserve Bank; (b) insurance companies; (c) mutual funds, pensions funds and other collective investment vehicles; (d) All India Financial Institutions (AIFIs), viz., Exim Bank, NABARD, NHB and Small Industries Development Bank of India (SIDBI); and, (e) companies/entities with net-worth of INR 5 billion or above. 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. The guidelines for Resident (Retail/Non-Retail) and Non-Residents are as follows: Resident Retail Users • Allowed to transact INR IRD only for the purpose of hedging underlying interest rate risk. • Products allowed: Forward Rate Agreement (FRA), Interest Rate Swap (IRS) and European Interest Rate Options (IRO) including caps, floors, collars and reverse collars. Resident Non-Retail Users • Allowed to transact INR IRD for the purpose of hedging underlying interest rate risk and otherwise. • Products allowed: Products allowed for resident Retail users, swaptions, non-leveraged structured derivative products (combination of cash and/or generic derivative instrument). Non-Resident Users • Non-resident clients from a FATF compliant country complying with RBI KYC requirements are allowed to transact INR IRD. - For purpose of hedging INR interest rate risk. non- residents may undertake using FRA, IRS, European IRO, swaptions, non-leveraged structured derivatives. - For purposes other than hedging, non-residents (other than individuals) may undertake Overnight Indexed Swaps (OIS) transactions either directly with a market-maker in India, or by way of a ‘back-to-back’ arrangement through a foreign branch/parent/group entity (foreign counterpart) of the market-maker. - Foreign Portfolio Investors (FPIs), collectively, may also transact in interest rate futures (IRF) up to a limit of net long position of INR 50 billion. - All payments related to IRD transactions may be routed through a Rupee account of the non-resident or through a vostro account maintained with an Authorised Dealer bank in India. Documentation • KYC + India onboarding. • Board resolution/Dealing mandate. • ISDA, CSA (Global CSA acceptable). • Regulatory declarations. This is only a brief representation of the RBI guidelines. Full set of RBI guidelines are available on www.rbi.org.in . Citibank India FIFC Building C-54 & C-55, BKC Bandra East, Mumbai 400098 FX Sales Contact: +91 22 6175 5400 /5500 India
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