The Reserve Bank of India (RBI) yesterday further liberalised the foreign exchange transaction procedures by allowing booking of forward contracts to the exporters and importers without underlying transactions.
Such exposure, however, will always be limited to 25 per cent of the average export/import turnover subject to a cap of $50 million.
The move will enable corporates to hedge their position as well as add depth to the forex market by triggering additional supply as well as demand of dollars.
"It will help exporters to hedge their expected receivables. We will see proactive actions in the exchange market now," said a forex dealer.
Till now corporates could hedge their foreign exchange exposures by using various products like forward contracts, swaps and options only with the support of documentary evidences of underlying transactions.
An RBI release said: "Exporters and importers often face situations where based on past performances they are certain to enter into foreign exchange commitments in the near future. In the absence of documents evidencing firm commitments, however, they are unable to hedge such risk. It was felt that the facility of booking forward based on past performance without having to produce documents upfront would enable exporters/importers to take hedging decisions in a dynamic manner."
"It has been decided that authorised dealers may now allow booking of forward contracts to exporters and importers without the production of documents" on exposure to foreign exchange risk provided such "contracts outstanding do not exceed 25 per cent of the eligible limit worked out on the basis on the average of the previous three years export/import turnover". It has capped this exposure at $50 million.
The central bank feels that the proper the proper use of the facility can minimise the risk and reduce the cost of operation.
