RBI Tightens Forex Derivative Rules Amid Rupee Depreciation

Amid sharp depreciation in the rupee, the Reserve Bank on Wednesday announced more actions focused on authorised dealers (ADs).

The moves follow a "review of evolving market conditions" and are applicable immediately.

Authorised dealers (ADs) -- banks authorised by RBI to deal in foreign exchange -- will not be able to offer non-deliverable derivative contracts involving the Indian rupee to resident or non-resident users, the central bank said in a late-evening notification.

They may, however, continue to offer deliverable foreign exchange derivative contracts to users to meet their hedging requirements, provided that users do not undertake offsetting non-deliverable derivative positions.

The ADs should not permit a user to rebook any foreign exchange derivative contract, whether deliverable or non-deliverable, which is cancelled after the date of issuance of these instructions, it said.

For this purpose, the ADs may call for such information or documents from users as they deem necessary for complying with the requirements, it added.

They should not undertake any foreign exchange derivative contract with their related parties, it said, clarifying that 'related parties' shall have the same meaning as assigned to it under the Indian Accounting Standard (Ind AS) 24 '“ Related Party Disclosures or International Accounting Standard (IAS) 24 '“ Related Party Disclosures or any other equivalent accounting standards.

The actions come days after the rupee breached the psychologically important Rs 95 to a US dollar mark in intra-day trade on Monday. The forex market will open after a two-day break on Thursday.

Over the weekend, the RBI had imposed a cap of USD 100 million on ADs' net open positions on the rupee in the foreign exchange market by April 10, which had an intended impact with the currency appreciating in early trade on Monday before closing lower.