RBI panel moots hedging abroad

MUMBAI, Nov 21: The R V Gupta committee on Hedging through international commodity exchanges' has recommended that Indian corporates which...

MUMBAI, Nov 21: The R V Gupta committee on Hedging through international commodity exchanges8217; has recommended that Indian corporates which have genuine underlying commodity price risk exposure should be permitted to hedge in offshore markets.

Presenting his report to the Reserve Bank of India governor, C Rangarajan today, R V Gupta, deputy governor of the RBI said that the report has laid out a two-phase time frame for granting hedge freedom to Indian corporates.

quot;Phase I will allow corporates to access exchange traded risk management products and OTC products can be restricted to vanilla swaps. In phase II OTC options and exchange traded options can be permitted,quot; Gupta told newsmen after presenting the report. The committee which was set up by the RBI in July consisted of Dipak Chatterjee, Additional Secretary, ministry of commerce, Kamal Kishore, economic adviser, ministry of food and consumer affairs, P R Suresh, officer on special duty, ministry of finance, SD Kapur, director MMTC, S N Sawaikar, DMD, State Bank of India, Pavan Sukhdev, head of treasury, Deutche Bank, Lester Periera and Jamal Macklai, partner, Macklai and Macklai.

Rangarajan, while accepting the report said, quot;the RBI will be examining the reportquot;. The committee has said that hedging should be allowed in two phases 8211; phase I will be upto the end of 1998 and phase II will commence from January 1999.

Currently, Indian corporates can not hedge in the offshore commodities market due to various restrictive provisions of the Forward Contracts Regulation Act, 1952. The committee has recommended that through a suitable notification under Article 27 of the Act the central government may allow Indian entities access to offshore hedging products.

Phase I, the committee stated, will be the period of acclimatisation, where i a modicum of regulatory oversight has to be in place to see that genuine underlying risk exists and ii the proposed hedge instruments are appropriate in relation to the stated objectives and risk management is in place.

Delving into the regulatory input during phase I, the Gupta committee states that it should consist of a simple diligence exercise at preeligibility stage should be carried out to see that the concerned corporate has the authentic underlying exposure, a clear cut board approved risk management policy has been formulated and the corporate is prepared to put in place a well designed system of internal control and ensure periodic oversight by the board.