RBI allows non-residents to hedge currency risk

29 Dec 2011

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The Reserve Bank has allowed non-residents to hedge currency risk on external commercial borrowings (ECBs) denominated in rupees with authorized banks in India.

RBI had, in September, allowed overseas borrowings in the local currency and the current move is aimed at mitigating currency risk attached with the rupee borrowings.

RBI said all ''eligible borrowers'' can avail of ECBs designated in Indian rupee from foreign equity holders under the automatic/ approval route.

NGOs engaged in microfinance activities have been permitted to avail of ECBs designated in rupee, under the automatic route, from overseas organisations and individuals.

In order to facilitate this, the RBI has allowed non-residents to hedge their currency risk in respect of ECBs denominated in Indian rupees, with authorised category I banks in India.

RBI said it would notify necessary amendments to the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 separately.

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