The Reserve Bank of India (RBI) on June 06, 2023, issued an update to the Master Direction - Risk Management and Inter-Bank Dealings
The following has been stated namely: -
• In Part A which states the “Risk Management” in clause 1 which states “definitions” the following sub-clause shall be inserted namely: -
“Xii ‘Non-deliverable derivative contract (NDDC)’ means an OTC foreign exchange derivative contract in which there is no delivery of the notional amount of underlying currencies of the contract and which is cash settled”
• In clause 2 which states the “Directions for Authorised Dealers” the following sub-clauses shall be added namely: -
“ii. Authorized Dealers shall offer derivative contracts to a user as per the user’s classification in para (i) above. While offering a derivative contract involving INR to a user, other than NDDCs offered to a person’s resident outside India, and during the life of such contracts, Authorised Dealers shall ensure the points mentioned n (a) –(f)”
“x. Banks in India having an Authorised Dealer Category-I license under FEMA, 1999, and operating International Financial Services Centre (IFSC) Banking Units (IBUs) (as specified in circular no. RBI/2014-15/533.DBR.IBD.BC.14570/23.13.004/2014-15 dated April 01, 2015 (as amended from time to time)), shall be eligible to offer NDDCs involving the Rupee or otherwise to persons resident outside India. Banks can undertake such transactions through their IBUs or through their branches in India or through their foreign branches (in the case of foreign banks operating in India, through any branch of the parent bank). Such transactions can be cash-settled in INR or any foreign currency.”
“xi. Banks in India having an Authorised Dealer Category-I license under FEMA, 1999, and operating IBUs shall also be eligible to offer NDDCs involving INR to resident non-retail users from their branches in India subject to compliance with the directions set out in para 2A(ii) above. Such transactions shall be cash-settled in INR.”
• In Part C which states “Inter-Bank Foreign Exchange Dealings” in clause 3A which states Transaction in Non-deliverable derivative contracts (NDDC) the following shall be added namely: -
“Authorized dealers having an IFSC Banking Unit (IBU) (as specified in circular no. RBI/2014-15/533.DBR.IBD.BC.14570/23.13.004/2014-15 dated April 01, 2015 (as amended from time to time)) may transact in NDDCs with other AD Category-I banks having IBUs and banks overseas. Banks can undertake such transactions through their IBUs or through their branches in India or through their foreign branches (in the case of foreign banks operating in India, through any branch of the parent bank). Such transactions can be cash-settled in INR or any foreign currency.”
[Notification No. RBI/FMRD/2016-17/31 FMRD Master Direction No. 1/2016-17]
