RBI may allow hedging the currency risks by local subsidiaries

The Dollar Business Bureau 

The Reserve Bank of India (RBI) on Friday has come out with draft rules for centralised hedging for domestic subsidiaries of international companies. The foreign parent company of a subsidiary or its central treasury can be able to hedge the risks of currency arising from actual current account exposures of the domestic subsidiary to better manage the latter’s risk of currency, the central bank said in a notification. 

The RBI had first announced the step in a policy review meeting in October. It had asked for comments on the draft guidelines by November 11. 

The purpose of the new policy is “to provide greater flexibility for hedging currency risks arising from current account transactions of domestic subsidiaries of multinationals by the parent or any non-resident group entity”, the RBI said. 

According to the draft rules, it is recommended that such entities can hedge in all derivatives of foreign currency-rupee. But to get the facility, the foreign company will have to be incorporated in the country, as India is a member of Financial Action Task Force (FATF). 

The company may go to a registered investment bank that manages the forex (foreign exchange) transactions of its subsidiary to hedge the currency risk of and on behalf of its subsidiary, the RBI said. 

The foreign company can approach the i-bank, directly or via its banker overseas, it added.