Nod to Rupees non-deliverable derivatives to residents

The regulator’s decision to allow banks to offer Indian residents rupee non-deliverable foreign exchange derivative contracts (NDDCs) will help eliminate arbitrage between domestic and overseas markets, said experts.

Indian banks, which operate International Financial Services Centre (IFSC) Banking Units (IBUs), can offer rupee NDDCs in the onshore market, said the Reserve Bank of India in a statement.

The derivative contracts will be settled in rupees and the central bank will issue directions about them separately, said the statement on developmental and regulatory policies issued along with monetary policy.

RBI said the step intended to develop the onshore Indian rupee (INR) NDDC and provide residents with the flexibility to efficiently design their hedging programmes.

“Bringing the NDF markets to the International Financial Services Area is a welcome move as we may see more realistic forward rates for the rupee against most currencies,” said Abizer Diwanji, head–financial services, EY India.

Indian banks operating units in the International Financial Services Centre were permitted to transact in rupee NDDCs with non-residents and with each other with effect from June 1, 2020.