RBI amends hedging norms for MNCs' Indian subsidiaries

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SME Times News Bureau | 22 Mar, 2017
The Reserve Bank of India (RBI) on Tuesday said it has amended the hedging guidelines for Indian subsidiaries of multi-national companies (MNCs) with a view to providing operational flexibility.

"With a view to providing operational flexibility to multinational entities and their Indian subsidiaries exposed to currency risk arising out of current account transactions emanating in India, the extant hedging guidelines have been amended," RBI said in a notification here.

The move will provide operational flexibility for booking derivative contracts to hedge the currency risk arising out of current account transactions of Indian subsidiaries of MNCs, it said.

The RBI asked the banks to bring the amendments to the notice of their customers.

"The transactions under this facility will be covered under a tripartite agreement involving the Indian subsidiary, its non-resident parent and the authorised dealer (AD) bank.

"This agreement will include the exact relationship of the Indian subsidiary or entity with its overseas related entity, relative roles and responsibilities of the parties and the procedure for the transactions, including settlement," it said.

The profit or loss of the hedge transactions shall be settled in the bank account and books of accounts of the Indian subsidiary, it added.

"The concerned AD bank shall be responsible for monitoring all hedge transactions booked by the non-resident entity and ensuring that the Indian subsidiary has the necessary underlying exposure for the hedge transactions," the RBI said.