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Currency hedging norms eased for FIIs

The Reserve Bank of India has allowed foreign institutional investors (FIIs) to approach any bank to hedge the currency risk on their stock market investments.

Written by ENS Economic Bureau | Mumbai | Published: October 24, 2012 1:29:30 am

The Reserve Bank of India has allowed foreign institutional investors (FIIs) to approach any bank to hedge the currency risk on their stock market investments.

At present,only designated branches of banks maintaining accounts of FIIs are allowed to act as market makers for hedging FII currency risk on the market value of entire investment in equity and/or debt in India as on a particular date.

“It has now been decided to allow FIIs to approach any Authorised Dealer (AD) Category I bank for hedging their currency risk on the market value of entire investment in equity and/or debt in India as on a particular date,” the RBI said. The eligibility for cover may be determined on the basis of a valuation certificate provided by the designated 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 RBI said.

The FII should also provide a quarterly declaration to the custodian bank that the total amount of derivatives contract booked across banks are within the market value of its investments. “The hedges taken with AD banks other than designated AD banks,have to be settled through the special non-resident rupee account maintained with the designated bank through RTGS/NEFT,” it said.

FII inflows have touched $23.4 billion in the calendar year so far. FIIs have been quick to respond to the recent reform initiatives announced by the government. They have raised their holding in three out of the four companies that form the Sensex at the BSE.

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