**Summary:**
This circular, RBI/2018-19/79 A.P. (DIR Series) Circular No. 15, issued by the Reserve Bank of India on November 26, 2018, modifies the hedging provisions for External Commercial Borrowings (ECBs) under Track I of the ECB framework. Specifically, it reduces the mandatory hedge coverage from 100% to 70% for eligible borrowers raising foreign currency denominated ECBs with an average maturity between 3 and 5 years, as outlined in paragraph 2.4.2 vi of Master Direction No. 5 dated January 1, 2016. This change was decided in consultation with the Government of India.
Furthermore, the circular clarifies that ECBs falling within the aforementioned scope but raised before the date of this circular will only be required to mandatorily rollover their existing hedges to the extent of 70% of the outstanding ECB exposure. All other provisions of the ECB policy remain unchanged.
The circular, issued under sections 10(4) and 11(2) of the Foreign Exchange Management Act, 1999, directs Authorized Dealer Category-I banks to bring these changes to the attention of their constituents and customers. Master Direction No. 5 dated January 1, 2016, is being updated to reflect these modifications.
For further information, Vandana Khare, General Manager, Reserve Bank of India, may be contacted.
Key Entities Referenced
Reserve Bank of India: The central bank of India, responsible for regulating the country's financial system.
External Commercial Borrowings (ECB): Commercial loans raised by eligible resident entities from recognized non-resident entities.
A. P. DIR Series Circular No.15: A circular issued by the Reserve Bank of India pertaining to External Commercial Borrowings (ECB) policy.
Authorized Dealer CategoryI (AD CategoryI): Banks authorized by the Reserve Bank of India to deal in foreign exchange.
Master Direction No.5: A comprehensive directive issued by the Reserve Bank of India concerning External Commercial Borrowings, Trade Credit, Borrowing and Lending in Foreign Currency.
A. P. DIR Series Circular No. 11: A circular issued by the Reserve Bank of India pertaining to External Commercial Borrowings (ECB) policy.
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.
Mumbai, Maharashtra: The city in which the Reserve Bank of India is located.
RESERVE BANK OF INDIA
Mumbai - 400 001
RBI/2018-19/79
A.P. (DIR Series) Circular No.15 November 26, 2018
To
All Category-I Authorised Dealer Banks
Madam / Sir
External Commercial Borrowings (ECB) Policy – Review of Hedging Provision
Attention of Authorized Dealer Category-I (AD Category-I) banks is invited to paragraphs 2.4.2 and 2.5
of Master Direction No.5 dated January 1, 2016 on “External Commercial Borrowings, Trade Credit,
Borrowing and Lending in Foreign Currency by Authorised Dealers and Persons other than Authorised
Dealers”, as amended from time to time and A. P. (DIR Series) Circular No. 11 dated November 06,
2018, in terms of which certain eligible borrowers raising foreign currency denominated ECBs under
Track I, having an average maturity between 3 and 5 years, are mandatorily required to hedge their
ECB exposure fully.
2. On a further review of the extant provisions, it has been decided, in consultation with the
Government of India, to reduce the mandatory hedge coverage from 100 per cent to 70 per cent for
ECBs raised under Track I of the ECB framework by eligible borrowers given at paragraph 2.4.2 (vi) of
the aforesaid Master Direction for a maturity period between 3 and 5 years. Further, it is also clarified
that ECBs falling within the aforesaid scope but raised prior to the date of this circular will be required
to mandatorily roll-over their existing hedge(s) only to the extent of 70 per cent of outstanding ECB
exposure.
3. All other provisions of the ECB policy remain unchanged. AD Category - I banks should bring the
contents of this circular to the notice of their constituents and customers.
4. The aforesaid Master Direction No. 5 dated January 01, 2016 is being updated to reflect the
changes.
5. The directions contained in this circular have been issued under section 10(4) and 11(2) of the
Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions /
approvals, if any, required under any other law.
Yours faithfully
Vandana Khare
General Manager