The Hindu Business Line : RBI group proposes further deregulation of forex market

A group appointed by the RBI has recommended that Indian resident entities should be permitted to cancel and rebook all forward contracts freely, irrespective of their tenor.

The Internal Technical Group on Forex Markets said foreign currency rupee-swaps booked to hedge genuine foreign currency exposures may also be permitted to be rebooked on cancellation.

However, currency swaps that enable a corporate to move from a rupee exposure to a foreign currency exposure, once cancelled, cannot be rebooked.

The group, which has been set up to review the central bank's measures in the forex market, has recommended that capital controls should be relaxed to further deregulate the foreign exchange market.

The draft report of the group which was released on Friday suggested that corporates should be allowed to deal in covered call and put options, provided adequate accounting standards and risk management systems are in place.

Corporates which had derived foreign exchange exposures arising from rupee-foreign currency swaps may be permitted to hedge the interest rate risk and cross currency exposures (not involving the rupee).

As of now, banks accept deposits from NRIs in US dollar, pound sterling, euro and the Japanese yen. The group has recommended that banks may also accept deposits in other currencies such as the Canadian dollar, Australian dollar and New Zealand dollar.

It has also been recommended that some banks should be allowed to hedge commodity risks for corporate clients and provide capital against their actual open exchange position.

"Banks should also be given the freedom to decide on the period of crystallisation of unpaid export bills. The exchange gain and loss on crystallisation may be passed on to exporters symmetrically."

The group also recommended that forex data including traded volumes for derivatives, such as foreign currency - rupee options - should be made available to the market on a regular basis.

Banks should also put in place a `customer suitability and appropriateness policy' in terms of its derivative transactions, says the report. It is also recommended that the trading time of the inter-bank forex market should be extended by one hour from 4 p.m. to 5 p.m.

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