RBI may allow forex hedging by MNC subsidiaries

The Reserve Bank today came out with the draft guidelines for centralised hedging for local subsidiaries of foreign companies.

The overseas parent of a company or its central treasury can hedge the currency risks arising from genuine current account exposures of the local subsidiary to better manage the latter's currency risk, the RBI said in a notification.

The RBI, which had first announced the move in the October policy review, has invited comments on the draft rules by November 11.

The purpose of the new policy is "to provide greater flexibility for hedging the currency risks arising from current account transactions of domestic subsidiaries of multinationals by the parent or any non-resident group entity", the central bank said.

It is proposed that such companies will be able to hedge in all foreign currency-rupee derivatives. But to avail of the facility, the foreign entity will have to be incorporated here, as India is member of the Financial Action Task Force (FATF), the draft guidelines said.

It may approach a registered investment bank which handles the forex transactions of its subsidiary for hedging the currency risk of and on the latter's behalf, the RBI said, adding the foreign entity can also approach the i-bank either directly or through its banker overseas.