Stepping up its efforts to provide operational flexibility to multinational companies (MNCs) and their Indian subsidiaries, the Reserve Bank of India has amended the extant hedging guidelines. The move will provide flexibility for booking derivative contracts to hedge the currency risks arising from current account transactions of Indian subsidiaries of MNCs.
RBI in its new guidelines has said that the transactions under the facility will be covered under a tripartite agreement involving the Indian subsidiary, its non-resident parent / treasury & the bank and added that this agreement will include the exact relationship of the Indian subsidiary or entity with its overseas related entity, relative roles and responsibilities of the parties and the procedure for the transactions, including settlement.
To avail of the facility, a non-resident entity will have to be incorporated in a country that is member of the Financial Action Task Force (FATF) or member of a FATF-Style Regional body. Besides, the non-resident entity can approach a bank directly which handles the foreign exchange transactions of its subsidiary for booking derivative contracts to hedge the currency risk of and on the latter's behalf. The guidelines further stated that the Indian subsidiary will be responsible for compliance with the rules, regulations and directions issued under FEMA and any other laws applicable to the transactions in India.
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