Interbank trades, ECBs coupons not under FERR: RBI

What happened: The RBI clarified that its Foreign Exchange Rupee Reserve (FERR) requirement applies only to derivative contracts where the user purchases foreign currency against rupee. Interbank trades and ECB coupons are not covered. Key numbers: FERR applies to authorised dealers with notional value exceeding $2 million. Why it matters: The clarification relieves banks that were unsure about trading in the forex market after the RBI imposed the reserve requirement. The RBI also warned banks to guard against structuring of derivative transactions to avoid these provisions.

The RBI clarified that its Foreign Exchange Rupee Reserve (FERR) requirement applies only to derivative contracts where the user purchases foreign currency against rupee. Interbank trades and ECB coupons are not covered.

The clarification relieves banks that were unsure about trading in the forex market after the RBI imposed the reserve requirement. The RBI also warned banks to guard against structuring of derivative transactions to avoid these provisions.