All RBI Circulars MAY 2024 detailed explanation l Monthly RBI circular - May l Hindi
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Master Direction - Risk Management and Inter-Bank Dealings: Amendments
Standalone Primary Dealers (SPDs) have been granted authorisation in 2018 under Section 10(1) of the Foreign Exchange Management Act (FEMA), 1999. Accordingly, amendments are being made in the Master Direction to reflect the applicability of the provisions to SPDs. These amendments are placed at Annex I herewith. SPDs shall continue to comply with all applicable Directions issued by the Reserve Bank of India.
Standalone Primary Dealers may borrow in foreign currency from their parent or correspondent outside India or any other entity as permitted by Reserve Bank of India and avail overdraft in nostro accounts (not adjusted within five days), only for operational reasons. Such borrowings shall be within the limit for foreign currency borrowings prescribed in the Master Direction - Standalone Primary Dealers (Reserve Bank) Directions, 2016 dated August 23, 2016, as amended from time to time. If drawals in excess of the above limit are not adjusted within five days, a report, should be submitted to the Chief General Manager, Financial Markets Regulation Department, Reserve Bank of India, within 15 days from the close of the month in which the limit was exceeded. Such a report is not necessary if arrangements exist for value dating.
Banks' Exposure to Capital Market - Issue of Irrevocable Payment Commitments (IPCs)
The risk mitigation measures prescribed in the aforesaid circular were based on T+2 rolling settlement for equities (T being the Trade day).
The Stock Exchanges have since introduced T+1 rolling settlement, and accordingly the extant guidelines on issuance of IPCs by banks have been reviewed. Henceforth, all IPCs issued by custodian banks under the T+1 settlement cycle shall comply with the following instructions:
i) Only those custodian banks will be permitted to issue IPCs, who have a clause in the Agreement with clients giving the banks an inalienable right over the securities to be received as pay out in any settlement. However, this clause will not be insisted upon if the transactions are pre-funded i.e., either clear INR funds are available in the customer’s account or, in case of FX deals, the bank’s nostro account has been credited before the issuance of the IPC.
ii) The maximum intraday risk to the custodian banks issuing IPCs would be reckoned as Capital Market Exposure (CME) at 30 percent of the settlement amount. This is based on the assumption of 20 percent downward price movement of the equities on T+1, with an additional margin of 10 percent for further downward movement of price.
iii) In case margin is paid in cash, the exposure will stand reduced by the amount of margin paid. In case margin is paid by way of permitted securities to Mutual Funds / Foreign Portfolio Investors, the exposure will stand reduced by the amount of margin after adjusting for haircut as prescribed by the Exchange on the permitted securities accepted as margin.
iv) Under T+1 settlement cycle, the exposure shall normally be for intraday.
However, in case any exposure remains outstanding at the end of T+1 Indian Standard Time, capital will have to be maintained on the outstanding capital market exposure in terms of the Master Circular - Basel III Capital Regulations dated April 1, 2024, as amended from time to time.
Margin for Derivative Contracts
In 2021 circular on Margin for Derivative Contracts were issued to allow posting and collection of margin for permitted derivative contracts between a person resident in India and a person resident outside India.
The instructions have been reviewed based on market feedback and the Reserve Bank of India (Margin for Derivative Contracts) Directions, 2024 are being issued herewith.These Directions shall come into force with immediate effect and shall supersede Circular of 2021.
For the purpose of these Directions, Authorised Dealers shall mean Authorised Dealer Category-I (AD Cat-I) banks and Authorised Dealer Category - III Standalone Primary Dealers (AD Cat-III SPDs). The Directions contained in this circular have been issued under Sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 and are without prejudice to permissions/ approvals, if any, required under any other law.