RBI/FMRD/2016-17/31
FMRD Master Direction No. 1/2016-17
July 5, 2016
(
Updated as on September 22, 2025
)
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Updated as on April 16, 2025
)
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Updated as on May 03, 2024
)
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Updated as on June 06, 2023
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(
Updated as on September 01, 2020
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Updated as on June 01, 2020
)
(Updated as on January 07, 2020)
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Updated as on April 02, 2018
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Updated as on February 28, 2018 (Revised)
)
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Updated as on November 09, 2017
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Updated as on October 13, 2017
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Updated as on March 21, 2017
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Updated as on February 02, 2017
)
All Authorised Persons
Madam / Sir,
Master Direction - Risk Management and Inter-Bank Dealings
In exercise of the powers conferred by clause (h) of sub-section (2) of section 47 of the Foreign Exchange Management Act (FEMA), 1999 (42 of 1999), the Reserve Bank has framed regulations to promote orderly development and maintenance of foreign exchange market in India through Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 [
Notification No. FEMA 25/RB-2000 dated May 3, 2000
] and subsequent amendments thereto. Attention is also drawn to provisions in
Notification No. FEMA 1/2000-RB
,
Notification No. FEMA.3(R)/2018-RB
and subsequent amendments thereto. All of the above govern the Foreign Exchange Derivative Contracts, Overseas Commodity & Freight Hedging, Rupee Accounts of Non-Resident Banks and Inter-Bank Foreign Exchange Dealings etc. These Regulations are amended from time to time to incorporate the changes in the regulatory framework and published through amendment notifications.
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Within the contours of the Regulations, the Reserve Bank issues directions to Authorised Persons under Section 11 of the Foreign Exchange Management Act (FEMA), 1999. These directions lay down the modalities as to how the foreign exchange business has to be conducted by the Authorised Persons with their customers / constituents with a view to implementing the regulations framed. Further, Reserve Bank of India, in public interest and / or to regulate the financial system of the country to its advantage, issues directions to agencies undertaking foreign exchange transactions under Section 45W of the Reserve Bank of India Act, 1934.
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Instructions issued in respect of Foreign Exchange Derivative Contracts, Overseas Commodity & Freight Hedging, Rupee Accounts of Non-Resident Banks and Inter-Bank Foreign Exchange Dealings etc. have been compiled in this Master Direction. The list of underlying notifications / circulars which form the basis of this Master Direction is furnished in the
Appendix I
.
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It may be noted that, whenever necessary, Reserve Bank shall issue directions to Authorised Persons through A.P. (DIR Series) Circulars in regard to any change in the Regulations or the manner in which relative transactions are to be conducted by the Authorised Persons with their customers/ constituents. The
Master Direction
issued herewith shall be amended suitably simultaneously.
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Authorised Persons shall mean Authorised Dealer Category-I banks, Standalone Primary Dealers authorised as Authorised Dealer Category–III and for the purpose of exchange traded currency derivatives, Recognised Stock Exchanges and Recognised Clearing Corporations, authorised under Section 10 (1) of the FEMA, 1999.
Yours faithfully,
(Dimple Bhandia)
Chief General Manager
INDEX
PART – A
FOREIGN EXCHANGE TRANSACTIONS
SECTION I
Facilities for Persons Resident in India (other than Authorised Dealers) and for Persons Resident outside India
SECTION II
[Removed]
SECTION III
Facilities for Authorised Dealers
PART-B
[Removed]
PART-C
INTER-BANK FOREIGN EXCHANGE DEALINGS
PART-D
[Removed]
PART-E
A. REPORTS TO THE RESERVE BANK
B. REPORTING TO THE TRADE REPOSITORY
Annex I
Annex II
Annex III
Annex IV
Annex V
Annex VI
Annex VII
Annex VIII
Annex IX
Annex X
Annex XI
Annex XII
Annex XIII
Annex XIV
Annex XV
Annex XVI
Annex XVII
Annex XVIII
Annex XIX
Annex XX
Annex XXI
Annex XXII
Appendix I
Appendix II
Appendix III
PART – A
FOREIGN EXCHANGE TRANSACTIONS
SECTION I
Facilities for Persons Resident in India (other than Authorised Dealers) and for Persons Resident outside India
- Definitions
(i) In these Directions, unless the context otherwise requires:
- (a) 'Anticipated exposure' means currency risk arising on account of current or capital account transactions permissible under the FEMA, 1999 or any rules or regulations made thereunder, that are proposed to be entered into in future.
- (b) 'Contracted exposure' means currency risk arising on account of current or capital account transactions permissible under the FEMA, 1999 or any rules or regulations made thereunder, that have been entered into.
Explanation for the purpose of (a) and (b):
The term 'exposure' shall also include exposures arising out of transactions between residents that are denominated in a foreign currency or are linked to a foreign currency or are linked to a benchmark denominated in foreign currency, but settled in INR; and
The term 'exposure' shall not include exposures arising from foreign exchange derivative and foreign currency interest rate derivative transactions undertaken for purposes other than hedging.
- (c) 'Currency risk' means the potential for loss on account of movement in exchange rates of INR against a foreign currency or on account of movement in exchange rates of one foreign currency against another or on account of movement of interest rate applicable to a foreign currency.
- (d) 'Deliverable foreign exchange derivative contract' means an OTC foreign exchange derivative contract other than a non-deliverable foreign exchange derivative contract (NDDC).
- (e) 'Electronic Trading Platform (ETP)' shall have the same meaning as assigned to it in the Para 2(1)(iii) of
the Electronic Trading Platforms (Reserve Bank) Directions, 2018 dated October 05, 2018
, as amended from time to time.
- (f) 'Exchange traded currency derivative' shall have the same meaning as assigned to it in the Regulation 2(xvi) of the Foreign Exchange Management (Foreign exchange derivative contracts) Regulations, 2000 (
Notification no. FEMA.25/2000-RB dated May 03, 2000
), as amended from time to time.
- (g) 'Foreign currency interest rate derivative contract' means a financial contract which derives its value from the change in the interest rate of a foreign currency and which is for settlement at a future date, i.e. any date later than the spot settlement date, provided that contracts involving currencies of Nepal and Bhutan shall not qualify under this definition.
- (h) 'Foreign exchange derivative contract' means a financial contract which derives its value from the change in the exchange rate of two currencies at least one of which is not Indian Rupee and which is for settlement at a future date, i.e. any date later than the spot settlement date, provided that contracts involving currencies of Nepal and Bhutan shall not qualify under this definition.
- (i) 'Hedging' means the activity of undertaking a foreign exchange derivative / foreign currency interest rate derivative transaction to offset the impact of an anticipated or a contracted exposure.
- (j) 'Leveraged derivative' means an OTC derivative whose potential pay-out during the tenure of the derivative can be more than the notional amount of the contract or whose pay-out calculation involves effective multiplication, by a factor of more than 1.0 of either the notional amount or the underlying rate / price / index.
- (k) 'Mid-market mark' means the price of the derivative that is free from profit, credit reserve, hedging, funding, liquidity, or any other costs or adjustments.
- (l) 'Net worth' shall have the same meaning as assigned to it in the Section 2(57) of the Companies Act, 2013.
- (m) 'Non-deliverable foreign exchange derivative contract (NDDC)' means an OTC foreign exchange derivative contract in which there is no delivery of the notional amount of the underlying currencies of the contract and which is cash-settled.
- (n) 'Over-the-counter (OTC) derivative' means a derivative (deliverable or non-deliverable) other than those which are traded on Recognised Stock Exchanges and shall include those traded on electronic trading platforms (ETPs).
- (o) 'Recognised clearing corporation' shall have the same meaning as assigned to it in Regulation 2(1)(p) of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 dated October 03, 2018, as amended from time to time.
- (p) 'Recognised stock exchange' shall have the same meaning as assigned to it in Regulation 2(1)(q) of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 dated October 03, 2018, as amended from time to time.
- (q) 'Turnover' shall have the same meaning as assigned to it in the Section 2(91) of the Companies Act, 2013.
- (r) 'User' shall mean any person as defined in the Section 2(u) of the FEMA, 1999 (42 of 1999), whether resident in India or resident outside India, other than an Authorised Dealer.
