Stories
Banks Urge RBI Relief and Clarity on New Rupee Defense Rules
- •Banks have asked the Reserve Bank of India to ease a new 20 percent cash deposit rule for FX derivatives used to hedge current-account exposures.
- •Lenders proposed replacing the deposit mandate with a flat charge to avoid tying up crucial rupee liquidity in treasury operations.
- •The central bank introduced the measures over the weekend to curb corporate demand for forward dollars and support the falling rupee.
- •Financial institutions also sought the removal of the 2 million dollar threshold to prevent companies from splitting hedges into smaller lots.
- •Banks are seeking official clarity on whether the new deposit requirement applies to hedges against interest payments on foreign currency loans.
Key Questions Answered
Banks have requested that the Reserve Bank of India ease the mandate requiring a 20% cash deposit for FX derivatives used to hedge current-account exposures and scrap the threshold for the rule. They also proposed replacing the deposit with a flat charge to avoid tying up rupee liquidity.
The RBI's measures aim to curb corporate demand for forward dollars and reduce rupee volatility driven by steep oil prices and capital outflows. Additionally, the regulatory actions are designed to withdraw surplus banking liquidity and ease near-term depreciation pressure on the currency.
Lenders want clarity on whether the 20% cash deposit requirement applies to hedges against interest payments on foreign-currency loans. While rules exclude principal repayments for overseas loans, banks want to know if interest payments will also receive exemptions.
