RBI allows International Banking Units in Gujrat's GIFT City to settle NDDCs in INR

Previously, these derivatives were settled in foreign currency through cash payments.

According to the notification, AD Category-I banks operating IBUs are now allowed to provide NDDCs involving the Indian rupee to non-retail users residing in India for hedging purposes. These transactions will be settled in cash using the Indian rupee.

"The flexibility of cash settlement of NDDCs transactions between two AD Cat-I banks, and between an AD Cat-I bank and a person resident outside India in INR or any foreign currency," it said.

This will help develop the onshore rupee NDDC market and provide residents with the flexibility to efficiently design their hedging programmes, it said.

This move by the RBI will facilitate the growth of the domestic rupee NDDC market and enable residents to effectively structure their hedging strategies.

By allowing banks to offer rupee NDDCs to Indian residents, the RBI aims to reduce any disparities or arbitrage opportunities between domestic and overseas markets.

From June 1, 2020, banks in India operating International Financial Services Centre (IFSC) Banking Units (IBUs) were authorized to engage in rupee Non-Deliverable Derivative Contracts (NDDCs) with non-residents and among themselves. This decision aimed to enhance the financial services offered within the IFSC and promote the development of the rupee NDDC market.

According to the announcement, banks operating IFSC Banking Units (IBUs) will have the flexibility to settle their Non-Deliverable Derivative Contracts (NDDCs) with non-residents and among themselves in either foreign currency or Indian rupee.

However, transactions involving residents will be required to be settled exclusively in Indian rupee.

This flexibility in settlement options aims to facilitate smooth and efficient transactions while ensuring compliance with applicable regulations.