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Reserve Bank eases derivatives exposure guidelines for banks

The Reserve Bank of India eased the norms for banks to restructure derivatives contracts by allowing them to partially or fully terminate the contract before maturity

Written by ENS Economic Bureau | Mumbai | Published: July 24, 2012 1:33:16 am

The Reserve Bank of India (RBI) on Monday eased the norms for banks to restructure derivatives contracts by allowing them to partially or fully terminate the contract before maturity.

Such termination would not be treated as restructuring of the contract provided all other parameters are unchanged,the central bank said. Therefore,banks need not settle mark-to-market value at the time of termination through cash,RBI said.

‘In such cases,if the MTM value of the derivative contract is not cash settled,banks may permit payment in instalments of the crystallised MTM of such derivative contracts (including Forex Forward Contracts),’ the central bank said in a notice. The RBI has allowed banks to recover the mark-to-market hit in instalments from their clients,subject to some conditions.

The central bank said that banks must have a board approved policy for the same.

Banks must allow repayment in instalments only if they are certain of the company’s paying capacity and also the payment period must not exceed that of the tenure of the contract.

If the company is unable to pay any instalment within 90 days from the date of partial or full termination of the contract,the receivable must be classified as a non-performing asset by the bank. FE

New norms for NBFCs in factoring ops

The Reserve Bank of India said on Monday all private non-bank finance companies (NBFCs) that wish to engage in factoring business will have to apply for a certificate from the central bank.

The RBI demarcated a new category of NBFCs called NBFC-Factors wherein finance companies will be governed by a new set of regulations. It said that the existing NBFCs that do factoring shall also have to approach the RBI for a certificate within six months. FE

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