This website is only for informational purposes. Visitors are requested to note that the information is intended to be correct, complete, and up-to-date. Juris Corp does not warrant that the information contained on this website is accurate or complete, and disclaims any and all liability to any person for any loss or damage caused by errors or omissions, whether such errors or omissions result from negligence, accident or any other cause.

This website is not intended to be a source of advertising or solicitation. The reader must not consider the information contained herein to be an invitation for a lawyer-client relationship, must not rely on information provided herein and must seek independent advice. Transmission, receipt or use of any information on this website does not constitute or create a lawyer-client relationship. No recipients of content from this website should act or refrain from acting, based upon any or all of the contents of this website.

Furthermore, Juris Corp does not wish to represent anyone desiring representation based solely upon viewing this web site. Finally, the reader is warned that the use of e-mail for confidential or sensitive information is susceptible to inherent risks of lack of confidentiality associated with sending e-mail over the internet.

By clicking on the "I understand and agree" button below, the user acknowledges that:

  • This website is not a mode of advertisement, promotion, personal communication, or solicitation of any sort whatsoever and the user wishes to gain information about us for his/her own reasons;
  • Entering into this website does not establish a lawyer-client relationship.

We are not liable for any consequence of any action taken by the user relying on information provided under this website. In cases where the user has any legal issues, he/she must seek independent legal advice.

12 May 2017

New Role for the Offshore Parent MNC in the Indian Derivatives Market

One more step towards ease of doing business in India, is the Reserve Bank of India’s (“RBI”) circular of 21st March 2017 (“Circular”), whichallows multinational companies (“MNCs”) to access the Indian derivatives market on behalf of their Indian subsidiaries (“Subsidiaries”). The Circular provides operational flexibility to MNCs and their Subsidiaries in relation to the exposures of the Subsidiaries to currency risks arising out of current account transactions in the country.

In order to promote greater cohesion with their central treasuries, representations have been made in the past to the RBI to permit MNCs to hedge the exposure of the Subsidiaries at a global level.
While operational assistance was being sought at some level by the subsidiaries, the extent of involvement of the MNC parent in decision making or otherwise in terms of any action on the part of Subsidiaries in the Indian derivatives market was not clear.

The Circular to a significant extent, accedes to the request of the MNCs to directly undertake currency derivative transactions (including for their Subsidiaries) with certain banks (“AD Banks”) in India through such central treasury. MNCs are now permitted to enter into all currency transactions on behalf of their Subsidiary, over – the – counter ( “OTC”) as well as exchange – traded, that the Subsidiary is otherwise permitted to enter into.

A requirement under the Circular is the tripartite agreement between the MNC, the AD Bank and the Subsidiary, to document the rights and obligations of each of the parties and the transaction procedure, including settlement. It appears that the RBI wants this arrangement to set out the extent of involvement and liability and obligations of all the parties to the concerned derivative transactions.

This move of RBI will assist Subsidiaries not to necessarily invest in expertise and systems in a sub-optimal manner. In addition, this Circular will help offshore MNCs to monitor all the transactions closely on a global level.

The Circular with the experimental approach and noble intentions is in effect as of date. How effective will it be and how will it deepen the Indian derivative markets, is to be seen.

By Nikita Chawla and Aashka Shah 
This article was first published on Bar & Bench