The Reserve Bank of India (RBI) has favored allowing foreign companies and traders to hedge their commodity risk on futures exchanges. Banks and other financial entities like mutual funds may have to wait longer to enter the commodities futures market. RBI was insisting that the banks will be allowed only after Forward Contract Regulation Act is amended to give more powers to regulator and permit options trading in commodities.
Some of the exchanges, especially agri-centric exchanges like National Commodities and Derivatives Exchange have been asking the RBI to allow foreign hedgers. There are some big multinationals like Cargill and Glencore, among others, which have big trading interests in Indian commodities. They also export wheat, sugar, guar gum and maize, while importing edible oils and other commodities. But they were not able to fully hedge their risk despite having outfits registered in India. Now they will be in a position to hedge their risk and lock prices at hedged levels on futures exchanges for their India businesses.
Forward Markets Commission (FMC) Chairman Ramesh Abhishek had raised the issue of allowing foreign players to hedge their risk in commodities derivatives in a recent meeting of the Financial Stability and Development Council. He is understood to have said that banks should ask their borrowers, who deal in commodities as producers or users, to hedge their commodity price risk on the futures platform. FMC officials had held a series of discussions with RBI deputy governor and both agreed to allow foreign hedgers on the Indian derivative market. However, they could not reach an agreement on allowing banks to enter commodities derivatives.
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