The Reserve Bank of India (RBI) has introduced simplified norms for hedging exchange rate risk as part of which companies can take exposure of up to USD 30 million on gross basis.
The central bank first announced the scheme of simplified hedging facility in August 2016 and the draft scheme came out in April 2017.
"The facility is being introduced with a view to simplify the process for hedging exchange rate risk by reducing documentation requirements, avoiding prescriptive stipulations regarding products, purpose and hedging flexibility, and to encourage a more dynamic and efficient hedging culture," a RBI notification read.
The facility for resident and non-resident entities (other than individuals) to hedge exchange rate risk on transactions, contracted or anticipated, permissible under Foreign Exchange Management Act (FEMA) will be applicable from 1 January 2018.
"If hedging requirement of the user exceeds the limit in course of time, the designated bank may re-assess and, at its discretion, extend the limit up to 150 per cent of the stipulated cap," the guidelines said.