**Summary:**
This Reserve Bank of India (RBI) circular, RBI/2018-19/27 DNBR.PD.CC.No.094/03.10.001/2018-19 dated July 27, 2018, permits Standalone Primary Dealers (SPDs) to offer foreign exchange (FX) products to their Foreign Portfolio Investor (FPI) clients. This diversification of activities is in line with Para 11 of the Second Bimonthly Monetary Policy Statement for 2018-19, dated June 06, 2018.
While these FX activities are classified as non-core, SPDs must adhere to specific prudential regulations:
* Maintain a minimum Capital to Risk-Weighted Assets Ratio (CRAR) of 15%, including FX exposures in the risk-weighted assets calculation, as per the Master Directions on Standalone Primary Dealers Reserve Bank Directions, 2016.
* Adhere to the RBI's guidelines for foreign exchange exposure limits.
* Establish a Board-approved policy for undertaking and monitoring FX business.
SPDs seeking to offer FX products must apply for the necessary AD license from the Reserve Bank of India, Foreign Exchange Department, Central Office, Mumbai. Compliance with the Foreign Exchange Management Act, 1999, and all related rules, regulations, and directions is mandatory, including adherence to:
* Comprehensive Guidelines on Derivatives (DBOD.No.BP.BC.86/21.04.157/2006-07 dated April 20, 2007).
* Master Direction on Risk Management and Inter-Bank Dealings (RBI/FMRD/2016-17/31 dated July 5, 2016).
* Guidelines for Internal Control over Foreign Exchange Business (FE.CO.FMD.No.1838/02.03.137/2010-11 dated February 3, 2011).
The Standalone Primary Dealers Reserve Bank Directions, 2016, will be updated accordingly.
For further information, contact the Department of Non-Banking Regulation, Central Office, 2nd Floor, Centre I, World Trade Centre, Cuffe Parade, Colaba, Mumbai – 400005, India. Tel: +91 22 22182526, Fax: +91 22 22162768, Email: cgmdnbrcorbi.org.in. The circular was issued by Manoranjan Mishra, Chief General Manager.
Key Entities Referenced
Standalone Primary Dealers (SPDs): Financial institutions that underwrite and deal in government securities.
Foreign Portfolio Investors (FPIs): Investors who invest in financial assets of a country without directly managing those assets.
Reserve Bank of India (RBI): The central bank of India, responsible for regulating the financial system.
Foreign Exchange Management Act 1999: An Act of the Parliament of India to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.
Capital to Risk-Weighted Assets Ratio (CRAR): The ratio of a bank's capital to its risk-weighted assets. It is used to protect depositors and promote the stability and efficiency of financial systems around the world.
Mumbai, Maharashtra: A city in India where the Foreign Exchange Department, Central Office of RBI is located.
Master Directions on Standalone Primary Dealers Reserve Bank Direction, 2016: A regulatory document issued by the Reserve Bank of India (RBI) that provides comprehensive guidelines and instructions for Standalone Primary Dealers (SPDs) operating in India.
Foreign Exchange Department, Central Office: A department within the Reserve Bank of India (RBI) responsible for overseeing and regulating foreign exchange activities.
RBI/2018-19/27
DNBR (PD) CC.No.094/03.10.001/2018-19 July 27, 2018
All Standalone Primary Dealers
Madam/ Sir,
Diversification of activities of Standalone Primary Dealers-Foreign Exchange
Business
Please refer to Para 11 of the Statement on Developmental and Regulatory Policies issued
as part of the Second Bi-monthly Monetary Policy Statement for 2018-19, dated June 06,
2018, on expanding activities of Standalone Primary Dealers (SPDs).
2. In order to facilitate SPDs to provide comprehensive services to their FPI clients, it has
been decided to permit them to offer foreign exchange products to their FPI clients, as
permitted by the Bank from time to time. Such activities shall be part of their non-core
activities. The SPDs shall adhere to the following prudential regulations:
i. SPDs, while calculating the total risk weighted assets, shall include the forex
exposures for maintenance of minimum Capital to Risk-Weighted Assets Ratio
(CRAR) of 15 per cent on an ongoing basis. Details of capital charge calculation shall
be as per the Master Directions on Standalone Primary Dealers (Reserve Bank)
Direction, 2016, as updated from time to time.
ii. SPDs shall adhere to the guidelines for foreign exchange exposure limits as
prescribed by the Bank from time to time.
iii. SPDs shall frame a Board approved policy to undertake and monitor the foreign
exchange business.
3. SPDs desirous of offering forex products to their FPI clients may approach the Reserve
Bank of India, Foreign Exchange Department, Central Office, Mumbai for the necessary AD
licence.
4. While offering foreign exchange derivative contracts to their FPI clients, SPDs shall
comply with the provisions of the Foreign Exchange Management Act 1999, and all rules,
regulations and directions issued thereunder. In particular, they shall adhere to the
provisions of the following instructions to the extent of foreign exchange products allowed to
the SPDs:
i. Comprehensive Guidelines on Derivatives (DBOD No.BP.BC.86/21.04.157/2006-07
dated April 20, 2007), as amended from time to time;
ii. Master Direction on Risk Management and Inter-Bank Dealings (RBI/FMRD/2016-
17/31 dated July 5, 2016), as updated from time to time; and
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फोन: (+91-22) 22182526 फैक्स:(91-22) 22162768, Email: cgmdnbrco@rbi.org.in
Department of Non-Banking Regulation, Central Office, 2nd Floor, Centre-I, World Trade Centre, Cuffe Parade, Colaba, Mumbai – 400005, India
Tel.: (+91-22) 22182526 Fax: (91-22) 22162768, Email: cgmdnbrco@rbi.org.in
�हदीआसानह,ै इसका�योगबढाइय।ेiii. Guidelines for Internal Control over Foreign Exchange Business
(FE.CO.FMD.No.18380/02.03.137/2010-11 dated February 3, 2011), as amended
from time to time.
5. The Standalone Primary Dealers (Reserve Bank) Directions, 2016, shall accordingly be
updated.
Yours faithfully
(Manoranjan Mishra)
Chief General Manager