The Hindu Business Line : Forward contracts: FII norms eased

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Mumbai Feb. 8 The Reserve Bank of India on Thursday relaxed the norms for FIIs to rebook cancelled forward contracts. Banks will now allow FIIs to cancel and rebook forward contracts up to 2 per cent of the market value of their investments in equity and-or debt in India.

"The limit for calculating the eligibility for re-bookings shall be based on the market value of the portfolio as at the beginning of the financial year (April - March).

The outstanding contracts must be duly supported by underlying exposure at all times," said a notification by the RBI.

The RBI in the Mid-Term Review of Annual Policy, 2006-07 allowed FIIs to rebook 25 per cent of the cancelled forward contracts, provided such contracts are supported by underlying exposure.

"In view of the concerns expressed by the market participants in monitoring cancellations and rebooking within 25 per cent limit of the cancelled contracts, it has been decided to link the rebooking of cancelled contracts to the portfolio value.

Further, keeping in view the size of the market in India and the large positions held by FIIs, it has been decided to implement the flexibility for rebooking cancelled contracts in a gradual and phased manner," the RBI said.

The monitoring of forward cover must be done on a fortnightly basis.

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