RBI allows NRIs access to currency derivatives market

The Reserve Bank of India (RBI) has permitted non-residents Indians (NRIs) access to the exchange traded currency derivatives (ETCD) market to hedge currency risk arising out of their investments in India.

Under current regulations, NRIs are permitted to hedge their rupee currency risk through over the counter (OTC) transactions with banks authorised to deal in foreign exchange. 

"With a view to enable additional hedging products for NRIs to hedge their investments in India, it has been decided to allow them access to the exchange traded currency derivatives market to hedge the currency risk arising out of their investments in India under FEMA (Foreign Exchange Management Act), 1999," the RBI said in a notification on Thursday.

"NRIs may take positions in the currency futures/exchange traded options market to hedge the currency risk on the market value of their permissible (under FEMA, 1999) rupee investments in debt and equity and dividend due and balances held in NRE accounts," the notification said.

NRIs will be required to designate the bank for the purpose of monitoring and reporting their combined positions in the OTC and ETCD segments, it added. 

Besides, the onus of ensuring the existence of the underlying exposure rests with the NRI, the central bank specified. 

"If the magnitude of exposure through the hedge transactions exceeds the magnitude of underlying exposure, the concerned NRI shall be liable to such penal action as may be taken by Reserve Bank of India under the FEMA," RBI said.