Importers allowed to cancel and rebook forwards

The Reserve Bank of India (RBI) today allowed importers to cancel and rebook all forward contracts to hedge current account transactions.

Earlier, only up to one year forward contracts, which were booked to cover import exposures, could be rebooked after cancellations.

"To provide greater flexibility to residents in managing their exposures, it has been decided that all forward contracts, booked by residents to hedge current account transactions, regardless of tenure, may be allowed to be cancelled and rebooked freely," a RBI notification said.

The central bank clarified that this relaxation would not be applicable to forward contracts booked on past performance basis without documents.

Besides, rebooking norms for forward contracts booked to hedge transactions denominated in foreign currency but settled in Indian rupee have not be relaxed.

The facility of cancellation and rebooking would not be permitted unless the importer has submitted the required exposure information as on April 1 of the year, said the notification.

At present, an importer cannot rebook a forward contract maturing over a year after cancelling it even though exporters are granted this facility. Now, RBI has permitted importers to cancel and rebook the forward contract maturing over a year.

The relaxation may been triggered by the increasing importance of importers and India's comfortable foreign exchange reserves, bankers said.

This will help importers who may have imported equipment and need to cover their foreign exchange positions for a longer period. They can now apply better judgement of the currency movements in the business, said bank currency traders.

The RBI relaxation is expected to impart more volatility and greater depth to the forward currency markets.

Till now forward contracts booked to hedge export transactions with tenure greater than one year were permitted to be freely cancelled and rebooked, subject to submission of details of import and non-trade payment exposures by the constituents to their authorised dealers' banks on an annual basis.

At the same time, forward contracts booked to cover all other exposures, that is import exposures, falling due beyond one year, once cancelled, could not be rebooked.