Risk Management and Inter-Bank Dealings
Risk Management and Inter-Bank Dealings – Non-deliverable derivative contracts (NDDCs)
Please refer to Paragraph 1 of the Statement on Developmental and Regulatory Policies announced as a part of the first Bi-monthly Monetary Policy Statement for 2023-24 dated April 06, 2023 regarding development of the onshore non-deliverable derivative market. Attention of Authorised Dealers Category – I (AD Cat-I) banks is invited to the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 dated May 3, 2000 (Notification No. FEMA.25/RB-2000 dated May 3, 2000), as amended from time to time, and Master Direction – Risk Management and Inter-Bank Dealings dated July 5, 2016, as amended from time to time.
2. As per the extant regulatory framework, AD Cat-I banks operating International Financial Services Centre (IFSC) Banking Units (IBUs) are permitted to offer non-deliverable derivative contracts (NDDCs) to persons resident outside India. Such derivatives are cash-settled in foreign currency. With a view to developing the onshore INR NDDC market and providing residents the flexibility to efficiently design their hedging programmes, it has been decided to permit:
(a) AD Cat-I banks operating IBUs to offer NDDCs involving INR to resident non-retail users for the purpose of hedging. Such transactions shall be cash settled in INR; and
(b) The flexibility of cash settlement of NDDCs transactions between two AD Cat-I banks, and between an AD Cat-I bank and a person resident outside India in INR or any foreign currency.
3. Accordingly, the amendments being made to the Master Direction – Risk Management and Inter-Bank Dealings dated July 5, 2016, as amended from time to time, are placed at Annex herewith.
4. The directions contained in this circular have been issued under Sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions/ approvals, if any, required under any other law.
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