RBI allows FIIs to hedge currency risk at any authorised dealer bank

The Reserve Bank of India (RBI) has eased norms for hedging currency risk for foreign institutional investors (FIIs) by allowing them to approach any authorised dealer bank to hedge currency risk on their stock market investments.

Foreign institutional investors (FIIs) can approach any authorised dealer bank in the country for hedging their currency risk on the market value of their entire investment in equity and/or debt in India as on a particular date subject to conditions, RBI said in a notification.

Earlier, FIIs had to approach banks maintaining their accounts (or designated banks) to act as market makers for hedging their currency risks on the market value.

"It has now been decided to allow FIIs to approach any bank for hedging their currency risk on the market value of the entire investment in equity and/or debt in India," RBI said in a notification.

The eligibility for cover would, however, be determined on the basis of a valuation certificate provided by the designated AD category bank along with a declaration by the FII to the effect that its global outstanding hedges plus the derivatives contracts cancelled across all AD category banks is within the market value of its investments.

The FII should also provide a quarterly declaration to the custodian bank that the total amount of derivatives contract booked across authorised dealer banks are within the market value of its investments.

The hedges taken with the banks other than designated authorised dealer banks have to be settled through the special non-resident rupee account maintained with the designated bank through RTGS/NEFT.