Wednesday, July 25, 2012

Reserve Bank eases derivatives exposure guidelines for banks

The Reserve Bank of India (RBI) on Monday eased the norms for banks to restructure derivatives contracts by allowing them to partially or fully terminate the contract before maturity.

Such termination would not be treated as restructuring of the contract provided all other parameters are unchanged, the central bank said. Therefore, banks need not settle mark-to-market value at the time of termination through cash, RBI said.

‘In such cases, if the MTM value of the derivative contract is not cash settled, banks may permit payment in instalments of the crystallised MTM of such derivative contracts (including Forex Forward Contracts),’ the central bank said in a notice. The RBI has allowed banks to recover the mark-to-market hit in instalments from their clients, subject to some conditions.

The central bank said that banks must have a board approved policy for the same.

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