By Nimesh Vora
MUMBAI, April 25 (Reuters) - Indian residents will
likely need to provide proof of exposure to foreign exchange
risks to take advantage of the Reserve Bank of India's opening
up of the non-deliverable forward market, bankers said.
The Reserve Bank of India, while announcing its last policy
decision, said it will permit banks with IFSC banking units to
offer non-deliverable forex derivative contracts involving the
Indian rupee to local residents.
An IFSC Banking Unit or "IBU" is a bank permitted by the
Reserve Bank of India to operate from an International Financial
Services Centre (IFSC).
Previously, IFSC banking units were permitted to transact in
rupee NDF forex derivatives contracts only with non-residents
and with other eligible banks. A non-deliverable forward is a
contract that is settled without delivery of the rupee.
The RBI will set out guidelines for the new NDF framework,
clarifying whether residents have to provide proof of exposure
to foreign exchange.
"Reckon the same conditions that exist currently for hedging
in the OTC (over-the-counter) will apply to NDF," said V.
Lakshmanan, head of treasury at Federal Bank.
"RBI in my view will not want to create a differentiated
access to one instrument compared to another which is in
existence."
As per the RBI's existing guidelines, evidence of forex
exposure needs to be submitted to banks to access the OTC
market.
"It is difficult to see RBI dispensing with the exposure
requirement," a senior treasury official at a public sector bank
said.
"The idea behind broadening NDF access is to make way for a
market that is available beyond OTC hours and provide more
flexibility with hedging. Continuing with the exposure
requirement will not impact either."
Further, the exposure requirement will discourage "outright"
currency speculation and impact volumes "at the margin," the
official said.
(Reporting by Nimesh Vora; Editing by Dhanya Ann Thoppil)
