Reserve Bank of India (RBI) feels that foreign units of Indian companies and foreign companies in which part of equity is held by Indian firms have a role to play in the depreciation of rupee against the dollar.
The central bank feels that these entities may be taking speculative position in the non-deliverable forward (NDF) market resulting in the depreciation of rupee against the dollar.
Dollar-rupee swaps are issued by several entities or brokerages to foreign investors. Their Indian parents were using those to hedge their positions in the Indian markets, putting pressure on the rupeeÂ’s exchange rate. Such swaps were offered for commodities, as well as on Indian stock indices. RBI plans to discontinue such trading, reports indicate.
Anticipating this, the central bank made it mandatory for
foreign entities or structures with equity participation of Indian firms offering financial products linked to the rupee (such as non-deliverable trades involving foreign currency, rupee exchange rates, stock indices linked to the Indian market, etc) to have its approval.
If they fail to take the permission of RBI, it would be considered as violation of the Foreign Exchange Management Act (Fema), RBi said in a circular.
Some market participants said traders in the NDF may have to approach RBI for permission for trades involving the rupee, even if it is for a genuine hedging against rupee exposure.
RBI said the rupee was not fully convertible at present and such products could affect the countryÂ’s exchange rate management.
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