The Reserve Bank of India (RBI) backtracked somewhat on guidelines for exporters, currency exchange traders and authorized dealer category banks on converting foreign currency held in Exchange Earner’s Foreign Currency (EEFC) accounts into rupee in order to provide operational flexibility.
The central bank restored its previous provision of allowing credit of 100 percent foreign exchange earnings to the EEFC account after requiring a 50 percent conversion into rupee in May. However, even with the new provisions, the earnings are still subject to the conditions that the sum of accruals in the account during a calendar month should be converted into rupees on or before the last day of the succeeding calendar month after adjusting for utilization of the balances for approved purposes or forward commitments.
Back on May 10, RBI directed exporters to convert half of their foreign currency held in EEFC accounts into rupee within a fortnight in order to curb the rupee’s dramatic slide against the dollar. The bank said at the time that with respect to all future forex earnings, an exchange earner can retain 50 percent in non-interest-bearing EEFC accounts, while the remaining 50 percent will be surrendered for conversion into rupee balances.
But in its recent circular, RBI said that will allow exporters to cancel and rebook forward contracts to the extent of 25 percent of the total contracts booked for hedging their currency exposure.
The central bank also stated that for computation of net overnight open position limit (NOOPL) involving rupee, as one of the currencies, authorized dealer category banks need not include the positions taken by their overseas branches and also the delta of the options position. RBI, however, clarified that these positions will continue to be part of the total NOOPL along with cross-currency positions and positions rising from exchange traded currency futures/options transactions for calculation of the total foreign currency exposure of banks.
These provisions also apply to a Resident Foreign Currency Account (RFC) and a Diamond Dollar Account (DDA), it noted.
