Further to our Part III, this post seeks to examine the access provided by RBI to NRIs towards the exchange traded currency derivatives’ market and relaxations brought about in the extant guidelines for subscription to chit funds by NRIs.
4. NRIs permitted access to Exchange Traded Currency Derivatives (“ETCD”) market
With a view to enable additional hedging products for NRIs, to hedge their investments in India, RBI has allowed them access to the exchange traded currency derivatives market to hedge the currency risk arising out of their investments in India under FEMA, 1999. An announcement to this effect was made in the Monetary Policy Statement on April 5, 2016.
Vide A.P. (DIR Series) Circular No. 30 dated 2 February 2017, RBI has provided that NRIs may access the ETCD market as per the following terms and conditions:
- NRIs shall designate an AD Cat-I bank for the purpose of monitoring and reporting their combined positions in the over-the-counter (“OTC”) and ETCD segments.
- NRIs may take positions in the currency futures / exchange traded options market to hedge the currency risk on the market value of their permissible (under the Foreign Exchange Management Act, 1999 (“FEMA”)) Rupee investments in debt and equity and dividend due and balances held in NRE accounts.
- The exchange/ clearing corporation will provide details of all transactions of the NRI to the designated bank.
- The designated bank will consolidate the positions of the NRI on the exchanges as well as the OTC derivative contracts booked with them and with other AD banks. The designated bank shall monitor the aggregate positions and ensure the existence of underlying Rupee currency risk and bring transgressions, if any, to the notice of RBI / SEBI.
- The onus of ensuring the existence of the underlying exposure shall rest with the NRI concerned. If the magnitude of exposure through the hedge transactions exceeds the magnitude of underlying exposure, the concerned NRI shall be liable to such penal action as may be taken by RBI under FEMA.
5. Subscription to chit funds by NRIs
Vide RBI circular no. 107 dated 11 June 2015 and Foreign Exchange Management (Permissible Capital Account Transactions) (Second Amendment) Regulations, 2015 dated 2 March 2015 and Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Second Amendment) Regulations, 2015 dated 2 March 2015, RBI in consultation with the GOI has relaxed the extant guidelines for subscription to chit funds by NRIs.
It has been decided to permit NRIs to subscribe to chit funds, without limit on non-repatriation basis subject to the following conditions:
- The Registrar of chits or an officer authorized by the state government in accordance with the provisions of the Chit Fund Act,1982 in consultation with the state government concerned, may permit any chit fund to accept subscription from NRIs on non-repatriation basis.
- Subscription to chit funds shall be brought in through normal banking channel, including through an account maintained with a bank in India.
The next post seeks to examine the changes brought about by RBI in the Foreign Exchange Management (Remittance of Assets) Regulations, 2016, the Foreign Exchange Management (Deposit) Regulations, 2016 and the new investment option of ‘masala bonds’ made available to global investors to invest in India.