Today, some special terms has to be established by The Reserve Bank on the basis of which avail of ECBs (external commercial borrowings) designated in rupee is to be allowed.
According to a report stated by RBI, the NGOs have been permitted non-residents to hedge currency risk for external commercial borrowings (ECBs) denominated in rupees from foreign equity holders or with Indian banks under the automatic/ approval route.
The route is as per the ECB guidelines. Some are:
1. The amount and tenor of the hedge should not exceed that of the underlying transaction
2. On due date, settlement is to be done through the correspondent bank’s Vostro or the AD bank’s Nostro accounts
3. After canceling the contract, then it should not be re stablise. And gain may be passed on to the customer.
4. The contracts maybe rolled over on or before maturity of the underlying exposure.
All the action has been taken on the basis of currency risk that attached with the rupee borrowings. Although, it has allows to overseas borrowings in the local currency in September.
And now the main motive of decision taken to allow overseas organizations and individuals to avail of ECBs designated in rupee, under the automatic route as per the guidelines, is not more than to eliminate major economic risk that attached.
However Non-residents are those oversea organizations that made investment for forward foreign exchange contracts, foreign currency-INR options and foreign currency-INR swaps with rupee as the currency.
RBI notified that it had been decided to allow non-residents to hedge their currency risk in respect of ECBs denominated in rupees with banks in India.
By clarifying amount the RBI said that the amount and tenor of the hedge should not exceed that of the underlying transaction.
