July 5, 2016
All Authorised Dealers – Category I Banks
Madam / Sir,
Master Direction – on Risk Management and Inter-Bank Dealings
In exercise of the powers conferred by clause (h) of sub-section (2) of section 47 of the Foreign Exchange Management Act (FEMA), 1999 (42 of 1999), the Reserve Bank has framed regulations to promote orderly development and maintenance of foreign exchange market in India through Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 Notification No. FEMA 25/RB-2000 dated May 3, 2000 and subsequent amendments thereto. Attention is also drawn to provisions in Notification No. FEMA 1/2000-RB, Regulation 4(2) of Notification No. FEMA 3/RB-2000 and subsequent amendments thereto. All of the above govern the Foreign Exchange Derivative Contracts, Overseas Commodity & Freight Hedging, Rupee Accounts of Non-Resident Banks and Inter-Bank Foreign Exchange Dealings etc. These Regulations are amended from time to time to incorporate the changes in the regulatory framework and published through amendment notifications.
2. Within the contours of the Regulations, the Reserve Bank issues directions to Authorised Persons under Section 11 of the Foreign Exchange Management Act (FEMA), 1999. These directions lay down the modalities as to how the foreign exchange business has to be conducted by the Authorised Persons with their customers / constituents with a view to implementing the regulations framed.
3. Instructions issued in respect of Foreign Exchange Derivative Contracts, Overseas Commodity & Freight Hedging, Rupee Accounts of Non-Resident Banks and Inter-Bank Foreign Exchange Dealings etc. have been compiled in this Master Direction. The list of underlying notifications / circulars which form the basis of this Master Direction is furnished in the Appendix.
4. It may be noted that, whenever necessary, Reserve Bank shall issue directions to Authorised Persons through A.P. (DIR Series) Circulars in regard to any change in the Regulations or the manner in which relative transactions are to be conducted by the Authorised Persons with their customers/ constituents. The Master Direction issued herewith shall be amended suitably simultaneously.