The Reserve of Bank of India (RBI) being the premier financial regulator, recently came out with stringent policies in Foreign exchange derivatives.
The RBI very soon may tighten the norms for currency derivatives as several banks and companies are facing losses with calls on currency movements following speculative misinterpretation of forex direction. The Reserve Bank may restrict the foreign exchange derivatives for risk management purpose to safeguard the ailing companies and not for regular day trading. The banks may also be empowered by the apex bank to audit the papers of corporate client's risk management practices. The central bank may also keep vigilance on the use of foreign exchange, so that they are used only for the purpose of risk management and not for speculative purposes.
The central bank has also modified FEMA (Foreign Exchange Management Act) regulations and plugged few of its loopholes. Some of the Indian companies were misutilising these loopholes by raising funds in abroad through automatic FDI route. Non-listed real estate companies have been witnessed in following this technique to avoid regulation on external borrowings. After raising money from foreign sources they do compensate by issuing a fraction of equity to those lenders and return back rest of the fund. To avoid capital influx through such lacuna, RBI has issued notice to refund any sum, taken for the equity allotment purpose to foreign investors and NRIs, within 180 days from the date of receiving in case of non-allotment. The effort from central bank is meant for making monetary regulations more effective.
The RBI very soon may tighten the norms for currency derivatives as several banks and companies are facing losses with calls on currency movements following speculative misinterpretation of forex direction. The Reserve Bank may restrict the foreign exchange derivatives for risk management purpose to safeguard the ailing companies and not for regular day trading. The banks may also be empowered by the apex bank to audit the papers of corporate client's risk management practices. The central bank may also keep vigilance on the use of foreign exchange, so that they are used only for the purpose of risk management and not for speculative purposes.
The central bank has also modified FEMA (Foreign Exchange Management Act) regulations and plugged few of its loopholes. Some of the Indian companies were misutilising these loopholes by raising funds in abroad through automatic FDI route. Non-listed real estate companies have been witnessed in following this technique to avoid regulation on external borrowings. After raising money from foreign sources they do compensate by issuing a fraction of equity to those lenders and return back rest of the fund. To avoid capital influx through such lacuna, RBI has issued notice to refund any sum, taken for the equity allotment purpose to foreign investors and NRIs, within 180 days from the date of receiving in case of non-allotment. The effort from central bank is meant for making monetary regulations more effective.
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