To provide greater flexibility to FPIs and domestic market participants in exchange-traded currency derivatives (ETCD), RBI has allowed them to take foreign currency positions in the dollar-rupee pair up to $15 million per exchange without having to establish the existence of any underlying exposure.
In addition, the RBI has also allowed a combined exposure of up to $5 million equivalent per exchange in the currency pairs of euro-rupee, British pound-rupee and Japanese yen-rupee, put together without having to establish the existence of any underlying exposure.
Earlier, positions were allowed to be taken in ETCD markets only in the presence of an underlying exposure — that is, an importer could take a position in euros only if he had an invoice for importing goods/ services denominated in euro.
RBI said FPIs and domestic entities wishing to take positions over and above the limits specified will have to show the existence of an underlying exposure.
Indian importers of goods and services have now been allowed to hedge 100 per cent (as against the present 50 per cent) of their foreign currency payables. The limit would be computed as the higher of the average of their last three years’ imports or previous year’s turnover.
RBI is in the process of rationalising documentation and other administrative requirements for hedging on ETCD markets. Detailed operational guidelines will be issued by end-March.
In June 2014, FPIs were allowed access to ETCD markets while regulations for participation of domestic entities were modified to bring about parity between the ETCD and over-the-counter currency derivatives markets.