Trying to stop the ongoing fall in rupee, RBI issued instructions for dealers

Indian The Reserve Bank (RBI) on Wednesday announced several new instructions for authorized dealers amid a sharp fall in the rupee against the dollar. These instructions have come into effect with immediate effect. The central bank said in a notification that authorized dealers, i.e. banks permitted to deal in foreign exchange, will no longer be able to offer non-deliverable derivative (NDD) contracts linked to the rupee to resident and non-resident customers.

Customers will not be able to make non-deliverable deals

However, Authorized Dealer Banks will continue to be permitted to offer deliverable foreign exchange derivative contracts to enable customers to meet their risk hedging needs. There is a condition with this that customers will not be able to make non-deliverable deals parallel to this.

Dealer banks barred from entering into forex derivatives deals with ‘related parties’

RBI also directed that authorized dealer banks will not be able to re-book any foreign currency derivative contracts which have been canceled after the implementation of these instructions. Banks may ask for necessary information or documents from customers to comply with the rules. Further, dealer banks are prohibited from entering into any kind of foreign exchange derivatives deals with their ‘related parties’.

There is a limit of $100 million on the net open position of the rupee in the foreign exchange market.

The definition of ‘related party’ will be as per Indian Accounting Standard (Ind AS) 24 or International Standard (IAS) 24. This step has been taken at a time when the rupee had crossed the psychological level of Rs 95 per dollar during the recent trading session. Earlier, the RBI had also set a limit of $100 million on the rupee’s net open position (the difference between total purchases and sales in foreign currency) in the foreign exchange market for authorized dealer banks.