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FII rebooking of rupee contract linked to portfolio

Special Correspondent

Reserve Bank goes in for phased implementation

CHENNAI: The Reserve Bank of India (RBI) has limited the proposed permission to foreign institutional investors (FIIs) to rebook cancelled forward contracts involving rupees to two per cent of the market value of their entire investment in equity and/or debt in India.

The limit for calculating the eligibility for re-bookings will be based upon the market value of the portfolio as at the beginning of the financial year.

The outstanding contracts must be duly supported by underlying exposure at all times, says an RBI circular issued to Category-I authorised dealers/banks.

Imparting flexibility

The proposal for allowing FIIs to rebook their forward contract in rupees had been announced in the third quarter review statement of monetary policy of the RBI issued on January 31 and it had indicated a percentage link with the total of cancelled forward contracts of each FII. The norm now announced by the RBI, linking it to market value of exposures, follows consultations with market participants and has taken into account the need for "flexibility" in implementing rebooking of cancelled contracts "in a gradual and phased manner".

The category-I dealers have to ensure that the total forward contracts outstanding do not exceed the market value of the portfolio and that forward contract permitted to be rebooked do not exceed two per cent of the market value.

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