RBI relaxes OTC forex derivative contract and commodity hedging norms for unlisted companies

The Reserve Bank of India (RBI) has raised the net worth criteria for mandatory disclosure of derivatives contracts for unlisted companies not complying with accounting standards AS 30 and 32 to Rs200 crore from the earlier Rs100 crore.

Accordingly, all listed companies and their subsidiaries or joint ventures or associates having common treasury and consolidated balance sheet or unlisted companies with a minimum net worth of Rs200 crore should follow accounting treatment and disclosure standards on derivative contracts, as envisaged under AS 30/32, RBI said in a notification today.

This would, however, be subject to the conditions that all such products are fair valued on each reporting date;

That the companies follow the accounting standards notified under section 211 of the Companies Act, 1956 and other applicable guidance of the Institute of Chartered Accountants of India (ICAI) for such products/ contracts as also the principle of prudence, which requires recognition of expected losses and non-recognition of unrealised gains;

Disclosures are made in the financial statements as prescribed by the ICAI; and

The companies have a risk management policy with a specific clause in the policy that allows using the types of cost reduction structures.