RBI Reviews Foreign Exchange Transaction Norms to Ease Forex Operations

The Reserve Bank of India has proposed easing foreign exchange transaction norms following a review of existing regulations. The draft aims to give authorised dealers greater flexibility in the foreign exchange market.

The proposals cover hedging, balance sheet management, market-making and reporting requirements. The RBI has also invited public comments on the draft until March 10.

RBI Forex Rules: Greater Flexibility for Authorised Dealers

Under the draft titled “Foreign Exchange Dealings of Authorised Persons”, the RBI has proposed that authorised dealer category-I banks and standalone primary dealers will get wider operational flexibility.

They may undertake foreign exchange transactions with other authorised dealers for:

• Hedging exposures
• Balance sheet management
• Market-making
• Proprietary positions

They will also be permitted to borrow and lend in foreign currency, subject to regulatory conditions.

Non-Deliverable Derivatives in the Foreign Exchange Market

The draft allows authorised dealers to undertake non-deliverable derivative contracts (NDDCs) involving the rupee with other authorised dealers.

They may also enter into:

• Foreign exchange derivative contracts
• Foreign currency interest rate derivative contracts

These measures aim to enhance forex risk management tools and improve flexibility in managing currency exposures.

Electronic Trading Platforms for Forex Trading

The RBI has proposed allowing authorised dealers to undertake transactions on electronic trading platforms (ETPs) approved by the central bank.

Transactions on overseas ETPs may also be permitted. However, the platform operator must be based in a country that is a member of the Financial Action Task Force (FATF).

This step could improve efficiency, liquidity and price discovery in the forex market.

Gold Hedging Under Revised Foreign Exchange Transaction Norms

The draft also covers banks operating under the Gold Monetisation Scheme.

Eligible banks may hedge gold price risk using exchange-traded and over-the-counter products in overseas markets.

However, when using options-based products, banks must ensure there is no net premium receipt, whether direct or implied.

Key Takeaway as per New RBI Forex Rules

The proposed framework seeks to simplify compliance. The objective is to reduce operational friction while maintaining regulatory oversight.

If implemented, the revised foreign exchange transaction norms could improve flexibility in hedging and liquidity management.

The draft signals the RBI’s intent to modernise the foreign exchange framework while maintaining oversight through defined conditions and compliance safeguards.

Source: https://www.moneycontrol.com

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