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RBI Amends Risk Management and Inter-Bank Dealings Rules

On May 3, 2024, the Reserve Bank of India (RBI) issued amendments to its Master Direction on Risk Management and Inter-Bank Dealings, impacting Authorized Persons, including Standalone Primary Dealers (SPDs). The amendments are effective immediately, overriding any previous circulars listed in the Master Direction.

Key changes are as follows:

  1. Expanded Definition of Authorised Persons: The definition of “Authorised Persons” now includes not only Authorised Dealer Category-I banks but also SPDs authorised as Authorised Dealer Category-III. Additionally, Recognised Stock Exchanges and Clearing Corporations under Section 10(1) of the FEMA, 1999, are included. This broader definition aims for comprehensive regulatory coverage and consistent interpretation of regulations.
  2. Compliance for SPDs: SPDs authorised as Authorised Dealer Category-III must comply with specific directives from the Master Direction – Standalone Primary Dealers (Reserve Bank) Directions, 2016. This ensures tailored regulatory oversight, enhancing efficiency and compliance.
  3. Overseas Foreign Currency Borrowing: The amendments allow SPDs to borrow in foreign currency from approved overseas entities for operational purposes, within prescribed limits set in the Master Direction – Standalone Primary Dealers (Reserve Bank) Directions, 2016. Reporting is required if drawals exceeding these limits are not within five days, ensuring transparency and accountability.
  4. Enhanced Risk Management Measures: New measures for managing forex risk include establishing Net Overnight Open Position Limits (NOOPL) and Aggregate Gap Limits (AGL), set by respective Authorised Dealers’ boards and communicated to the RBI via the Centralised Information Management System (CIMS) or email. These measures aim to bolster risk management practices and financial system stability.
  5. Reporting:
    • Authorised Dealers must now submit daily statements of Foreign Exchange Turnover (Form FTD) and Gaps, Position, and Cash Balances (Form GPB) via the Centralised Information Management System (CIMS) by the next working day. This requirement ensures real-time monitoring and enhances regulatory oversight and risk management.
    • Authorised Dealers are required to submit quarterly details of foreign exchange exposures through CIMS by the 30th of the month following the quarter’s end. This includes comprehensive reporting for all corporate clients meeting specific criteria, based on the dealers’ own records.
    • Details of option transactions (FCY-INR) must be forwarded weekly through CIMS or email by the first working day of the following week. This frequent reporting allows for timely analysis and regulatory response to market changes.
    • Authorised Dealers must report their total outstanding foreign currency borrowings on the last working day of each month via CIMS by the 10th of the following month. This ensures ongoing monitoring and contributes to effective risk management.
    • The Head/Principal Office of each Authorised Dealer Category-I bank must submit an up-to-date list of all offices/branches maintaining Rupee accounts for non-resident banks by January 15th of the following year through CIMS or email. This ensures proper classification and oversight of non-resident bank accounts.
    • Authorised Dealers must report doubtful transactions, particularly those involving frequent cancellations of hedge transactions or underlying trade transactions by non-residents, on a quarterly basis via CIMS by the 10th of the month following the quarter’s end. This helps identify potential risks and ensures regulatory compliance.
    • Authorised Dealers are required to report all OTC foreign exchange derivative contracts and foreign currency interest rate derivative contracts to the Trade Repository (TR) of Clearing Corporation of India Ltd. (CCIL) within specified timelines. This ensures comprehensive oversight and accurate reporting of various transactions.

These amendments to the RBI’s Master Direction on Risk Management and Inter-Bank Dealings signify the regulator’s commitment to maintaining strong oversight and a robust regulatory framework within the financial sector.