Amendments To The Master Direction On Risk Management And Inter-Bank Dealings Issued By The Reserve Bank Of India (RBI) On May 3, 2024

Posted On - 11 June, 2024 • By - Harish Kungnavur

The Master Direction of Risk Management and Inter-Bank Dealings was implemented on July 5, 2016 to lay down the modalities as to how the foreign exchange business has to be conducted by the Authorized Persons (as recognized under Section 10 and 11 of the Foreign Exchange Management Act, 1999) with their customers/constituents with a view to implementing the regulations framed. These Master Directions were recently amended on May 3, 2024 to include Standalone Primary Dealers as the Authorized Persons under Section 10 and 11 of the Foreign Exchange Management Act, 1999. Following are the major amendments to the Master Direction:

Compliance with Master Directions:

AD Category-I banks must comply with the Master Direction – Reserve Bank of India (Financial Services provided by Banks) Directions, 2016, which was issued on May 26, 2016, and updated periodically while participating in ETCD market. Standalone Primary Dealers (SPDs) are now authorized as AD Category-III and must comply with the Master Direction – Standalone Primary Dealers (Reserve Bank) Directions, 2016, issued on August 23, 2016, and updated periodically.

Borrowing in Foreign Currency by SPDs:

SPDs can borrow in foreign currency from their parent company, a correspondent outside India, or other entities permitted by the Reserve Bank of India (RBI). They can also avail overdrafts in nostro accounts for operational reasons, provided these overdrafts are not adjusted within five days. Such borrowings must stay within the foreign currency borrowing limits prescribed in the aforementioned Master Direction for SPDs dated August 23, 2016.

Net Overnight Open Position Limit (NOOPL):

NOOPL for Authorized Dealers must be set by their respective boards and communicated to the RBI immediately through the Centralised Information Management System (CIMS) or email. These limits should not exceed 25% of the total capital (Tier I and Tier II) of the Authorized Dealer.

Aggregate Gap Limit (AGL):

AGL for Authorized Dealers must be set by their respective boards and communicated to the RBI immediately through CIMS or email. These limits should not exceed 6 times the total capital (Tier I and Tier II) of the Authorized Dealer.