Banks Seek Urgent Clarity on New RBI Forex Rules
Banks have sought clarification from the Reserve Bank of India (RBI) through the Foreign Exchange Dealers' Association (FEDAI) on implementing its recent currency-supporting forex measures. The RBI introduced a 20% Foreign Exchange Risk Reserve (FERR), requiring banks to hold cash with it against certain forex derivative trades. Banks have sought clarification on calculating this FERR, including for clients using multiple banks, and on passing costs to customers. They are also unsure whether FERR balances count towards mandatory liquidity requirements, including the Cash Reserve Ratio (CRR). The RBI is likely to release an FAQ on the new measures soon. These measures were introduced to dissuade speculative currency trades.
What this means
Banks are seeking clarity on key operational aspects of the RBI's new currency-supporting measures, particularly the 20% Foreign Exchange Risk Reserve (FERR). The questions about calculating FERR, especially for multi-bank clients, and whether these balances will count towards existing liquidity requirements like CRR, highlight the immediate challenges faced by lenders. This uncertainty, coupled with the need to understand how costs will be passed to customers, indicates that banks are navigating complex implementation issues. The anticipated RBI FAQ should provide much-needed guidance on these recent measures aimed at curbing speculative currency trades.
Most affected: Bank treasury and forex desks
Key takeaway: Anticipate a forthcoming RBI circular or FAQ to address operational grey areas in the new forex derivative rules before making system-wide changes.
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