Emerging Markets Rates and Currencies Handbook

INR Interest Rate Hedging can be done to mitigate INR interest rate risk either at balance sheet level or at portfolio level or at individual asset or liability level. User Classification Non-retail users shall include entities regulated by (a) the Reserve Bank; (b) insurance companies; (c) mutual funds, pensions funds and other collective investment vehicles; (d) All India Financial Institutions (AIFIs), viz., Exim Bank, NABARD, NHB and Small Industries Development Bank of India (SIDBI); (e) companies/entities with net-worth of INR 5 billion or above and (f) non-residents other than individuals. Any user who is otherwise eligible to be classified as a ‘non-retail’ user shall have the choice to be classified as a ‘retail’ user by market-makers. The guidelines for Resident (Retail / Non-Retail) and Non-Residents are as follows: a. Resident Retail Users • Allowed to transact INR IRD only for the purpose of hedging underlying interest rate risk. • Products allowed: Forward Rate Agreement (FRA), Interest Rate Swap (IRS) and European Interest Rate Options (IRO) including caps, floors, collars and reverse collars. b. Resident Non-Retail Users • Allowed to transact INR IRD for the purpose of hedging underlying interest rate risk and otherwise. • Products allowed: Products allowed for resident Retail users, swaptions, non-leveraged structured derivative products (combination of cash and/or generic derivative instrument). c. Non-Resident Users • Non-resident clients from a FATF compliant country • For purposes other than hedging, non-residents (other than individuals) may undertake Overnight Indexed Swaps (OIS) transactions either directly with a market-maker in India, or by way of a ‘back-to-back’ arrangement through a foreign branch/parent/group entity (foreign counterpart) of the market-maker. • Transactions in FCS-OIS by non-residents other than individuals can be undertaken with market-makers for purposes other than hedging interest rate risk. • OIS transactions including FCS OIS shall be subject to an overall limit, as specific below: I. The Price Value of a Basis Point (PVBP) of all outstanding OIS positions, including FCS-OIS positions shall not exceed the amount of INR 350 crore (PVBP cap). PVBP cap shall be calculated by making a gross addition, ignoring mathematical signs, of the PVBP of each non- resident. II. Non-residents shall not undertake any further OIS / FCS-OIS transactions for purposes other than hedging after the PVBP cap is reached. III. Clearing Corporation of India Ltd. (CCIL) shall publish the methodology for calculation of the PVBP and monitor as well as publish utilization of the PVBP limit on a daily basis. IV. Foreign Portfolio Investors (FPIs), collectively, may also transact in interest rate futures (IRF) up to a limit of net long position of INR 50 billion. • All payments related to IRD transactions may be routed through a Rupee account of the non-resident or through a vostro account maintained with an Authorised Dealer bank in India. All payments related to FCS-OIS transactions may be routed through normal banking channels. Documentation: • KYC + India onboarding • Board resolution / Dealing mandate • ISDA, CSA (Global CSA acceptable) • Regulatory declarations. This is only a brief representation of the RBI guidelines. Full set of RBI guidelines are available o n www.rbi.org.in. complying with RBI KYC requirements are allowed to transact INR IRD. • For purpose of hedging INR interest rate risk. non- residents may undertake using FRA, IRS, European IRO, swaptions, non-leveraged structured derivatives. • FCS OIS can be offered only to non-residents other than individual. Citibank India FIFC Building C-54 &C -55, BKC Bandra East, Mumbai 400098 FX Sales Contact: +91 22 6175 5400 / 5500