India’s third largest private sector lender Axis Bank announced on June 8 that Axis Bank has executed its first onshore INR non-deliverable derivative trade with a large domestic corporate client based in the South within the guidelines of the Central Bank.
The Reserve Bank of India (RBI) has permitted banks under Section 10(4) and 11(1) of the Foreign Exchange Management Act 1999 (42 of 1999) to offer INR-linked onshore non-deliverable derivative contracts to resident customers.
On June 6, 2023, The Reserve Bank of India (RBI) provided flexibility in the existing regulatory framework to promote the onshore Indian Rupee non-deliverable derivative contracts (NDDCs) market and for residents to undertake their hedging.
The new regulatory framework allows Authorized Dealer Category-I banks operating International Financial Services Centers (IFSC) Banking Units (IBUs) to offer non-deliverable derivative contracts (NDDCs) to persons resident outside India. However, these contracts will be cash settled in Indian Rupees (INR).
While offering INR-linked derivative contracts to any user other than NDDC offered to persons resident outside India and during the life of such contracts, Authorized Dealers shall ensure that Banks in India having Authorized Dealer Category-I license under FEMA (Foreign Exchange Management Act) 1999 and operating International Financial Services Centers (IFSC) Banking Units (IBUs).
Using non-deliverable contracts to entities or investors resident in India would allow them greater flexibility in managing their currency risk, say economists.
Axis Bank is one of the first Indian banks to execute Indian Rupee non-deliverable derivative contracts (NDDCs) transactions on June 8, 2023, in the new regulatory framework issued by the Reserve Bank of India. Presently Axis Bank has a network of 2,702 centers across India with 4,758 domestic branches and 10,990 ATMs to serve its customers.
As per the new regulatory framework of the Reserve Bank of India, a non-deliverable derivative contract (NDDC) is an over-the-counter (OTC) foreign exchange derivative contract with no delivery but cash settled of the notional amount of the underlying currencies of the contract.
Commercial banks in India having Authorized Dealer Category-I license under FEMA (Foreign Exchange Management Act) 1999 and operating IBUs will also be eligible to offer Indian Rupee non-deliverable derivative contracts (NDDCs) to resident non-retail users from their branches in India, subject to compliance.