RBI allowed NRIs to hedge their Currency Risk in respect of External Commercial Borrowings (ECB)

The Reserve Bank of India on 29 December 2011 allowed non-residents to hedge their currency risk in respect of external commercial borrowings (ECB) denominated in rupees, with AD Category-I (authorised dealer) banks in India.

The apex bank mentioned that the amount and tenor of the hedge cannot not exceed that of the underlying transaction. Besides, it should be in consonance with the extant regulations regarding tenor of payment or realisation of the proceeds.

The NGOs (non-Government organisations) engaged in microfinance activities were permitted to avail themselves of ECBs designated in Indian rupee under the automatic route from overseas organisations and individuals as per the ECB guidelines.

According to the RBI, once cancelled the contracts cannot be rebooked. The contracts may, however, be rolled over on or before maturity. On cancellation of the contracts, gains may be passed on to the customer.

Eligible borrowers were permitted to avail of ECBs designated in Indian rupees from foreign equity holders under the automatic/ approval route, as the case may be, as per the extant ECB guidelines.