RBI permitted Rupee Trade - Hedging Facilities for Non-resident Exporters & Importers

The Reserve Bank of India (RBI) on 21 July 2011 issued guidelines allowing non-resident exporters and importers to either use overseas banks or those in the country to settle foreign trade transactions invoiced in the Indian rupee. The initiative was taken to facilitate greater trade transactions in the rupee.

With exports and imports invoiced in rupees, non-resident importers and exporters can now hedge their currency risk with banks in India through their bankers having rupee vostro accounts in India. Firms with proof of an underlying trade deal denominated in rupees can now use either rupee forwards or options contracts to hedge their deals.

A non-resident exporter or importer can approach his banker overseas with appropriate documents with a request to hedge the rupee exposure arising from confirmed import or export order. The overseas bank will approach its correspondent bank in India for a price to hedge the exposure of its customer along with documentation. The same underlying exposure can’t be hedged with any other bank in India. If the underlying exposure is cancelled, the customer will have to cancel the hedge contract immediately.

Exporters and importers could also deal directly with banks in India. They can approach the bank in India with a request for forward cover for underlying transaction.

According to the guidelines, contracts, once cancelled, cannot be rebooked but may be rolled over on or before maturity subject to maturity of the underlying exposure. Once cancelled, gains can be passed on provided there is no rebooking. In case of extension, rollover can be permitted once, subject to conditions.