Inquisitive Mind

Reserve Bank of India (RBI) has issued directions on risk management and inter-bank dealings for hedging of foreign exchange risk. What is currency risk? Currency risk means the potential for loss on account of movement in – Exchange rates of Indian Rupee (INR) against a foreign currency. Exchange rates of one foreign currency against another. Interest rate applicable to a foreign currency. What is hedging? Hedging means the activity of undertaking a foreign exchange derivative / foreign currency interest rate derivative transaction to offset the impact of an anticipated / contracted exposure. What is anticipated and contracted exposure? Anticipated exposure means currency risk arising on account of current / capital account transactions that are proposed to be entered into in future Contracted exposure that have been entered into What is foreign exchange derivative and foreign currency interest rate derivative? Foreign exchange ...

Reserve Bank of India (RBI) has issued guidelines on manner of receipt and payment from a person resident outside India. Manner of Receipt and Payment from a Person Resident outside India The receipt and payment between a person resident in India and a person resident outside India shall be made through an Authorised Bank or Authorised Person and in the manner specified below – Trade transactions  Receipt / payment for export / import of eligible goods and services shall be made as under – Countries Manner of Receipt and Payment Nepal and Bhutan In Indian Rupees. Where the importer in Nepal has been permitted by the Nepal Rashtra Bank to make payment in foreign currency, receipts towards the export to Nepal may be in foreign currency. Member countries of Asian Clearing Union (ACU), other than Nepal and Bhutan Through ACU mechanism. Where the goods are shipped to India from a member country of the ACU (other than Nepal and Bhutan) b...

Reserve Bank of India (RBI) has issued directions on Financial Benchmark Administrators (FBA). Who is Financial Benchmark Administrator (FBA)? Financial Benchmark Administrator (FBA) means a person who controls the creation, operation and administration (i.e. production and dissemination) of benchmarks. What is benchmark? Benchmarks mean prices, rates, indices, values or a combination thereof related to financial instruments that are calculated periodically and used as a reference for pricing, valuation or settlement of financial instruments or any other financial contract. What is significant and non-significant benchmark? Significant benchmark means any benchmark notified by Reserve Bank of India (RBI) as a ‘significant benchmark’ taking into consideration its use, efficiency and relevance in domestic financial markets.  Non-significant benchmark means a benchmark other than the ‘significant benchmarks’. Which benchmarks are covered by FBA directions? The directions shall apply t...

Reserve Bank of India (RBI) has issued directions on Internal Ombudsman for regulated entities, which integrates and updates the erstwhile Internal Ombudsman schemes issued by RBI for banks, Non-Banking Financial Companies (NBFCs), Non-bank System Participants (NBSPs) and Credit Information Companies (CICs). To whom shall the directions on Internal Ombudsman apply? The directions on Internal Ombudsman (IO) shall apply to – Banks having 10 or more banking outlets in India, whether such bank is incorporated in / outside India. Non-Banking Financial Companies (NBFCs) fulfilling the following criteria – Deposit-taking NBFCs (NBFCs-D) with 10 or more branches. Non-Deposit taking NBFCs (NBFCs-ND) with asset size of ₹5,000 crore and above and having public customer interface. All Non-bank System Participants (NBSPs) with more than one crore Pre-paid Payment Instruments (PPIs) outstanding as on March 31, 2023, or thereafter, even if the number of PPIs outstanding falls below the threshold at a...

Reserve Bank of India (RBI) has issued directions on commercial paper and non-convertible debentures of maturity up to one year, which shall come into effect from April 01, 2024. Commercial Paper (CP) and Non-Convertible Debenture (NCD)  Commercial Paper (CP) means an unsecured money market instrument issued in the form of a promissory note. Non-Convertible Debenture (NCD) means a secured money market instrument with an original or initial maturity up to one year. Issuers of CPs and NCDs CPs and NCDs may be issued by the following entities subject to the condition that all fund-based facilities availed by the issuer from banks / All India Financial Institutions (AIFIs) / Non-Banking Financial Companies (NBFCs) are classified as Standard at the time of issue – Companies NBFCs, including Housing Finance Companies (HFCs) Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs) AIFIs – Export Import Bank of India (EXIM), National Bank for Agriculture and Rura...

Some banks are identified as systematically important and are subjected to higher capital requirements. When are banks termed as systematically important? What are the additional capital requirements for such banks? And which are the systematically important banks in India? What are Systematically Important Banks (SIBs)? Systematically Important Banks (SIBs) are perceived as banks that are ‘Too Big To Fail (TBTF)’.  Why additional policy measures are required for SIBs? The perception of TBTF creates an expectation of government support for these banks at the time of distress. Due to this perception, these banks enjoy certain advantages in the funding markets. However, the perceived expectation of government support amplifies risk-taking, reduces market discipline, creates competitive distortions, and increases the probability of distress in the future. These considerations require that SIBs should be subjected to additional policy measures to deal with the systemic risks and moral ...