RBI clarifies interbank trades, ECBs coupons not part of FERR
Reserve Bank of India recently clarified the applicability of foreign exchange risk reserve for banks. The requirement does not apply to banks engaging in market-making or proprietary trading. It will also not affect interest on External Commercial Borrowings or dividends payable to non-resident investors. The FERR must be maintained until one day after the derivative contract's termination.
Mumbai: Reserve Bank of India (RBI) has clarified that the new foreign exchange risk reserve (FERR) will be not be applicable for banks undertaking trades for market-making or assuming proprietary positions. Also, FERR will not be applicable on interest on External Commercial Borrowings (ECBs) or coupons on resident debt instruments held by non-residents, or dividends payable to non-resident investors, the central bank said in FAQs released on Thursday.The clarifications are a relief to banks who were unsure of trading in the foreign exchange market after the RBI imposed a 20% cash reserve requirement on forex derivative contracts above $2 million.
