Lok Sabha Question No. 664 (UNSTARRED), answered on 2018-07-20
Subject: Operational Flexibility for Multinational Entities
Ministry: FINANCE
Asked by: GOWDAR MALLIKARJUNAPPA SIDDESHWARA

## GOVERNMENTOF  INDIA

## MINISTRY OF FINANCE DEPARTMENT OF ECONOMIC AFFAIRS

## LOKSABHA UNSTARRED  QUESTIONNO.664

TO BE ANpWERED ON 20th July,2018/ ASHADHA29,1940  (SAKA)

## Operational  Flexibilify  for Multinational Eulities

## OUESTION

## 664: SHRI G.M. SIDDESHWARA:

Will the Minister of FINAITICE  be pleased  to state:

- a) Whether the Reserve  Bank of India has changed norms to provide operational  flexibility  to multinational  entities and their Indian subsidiaries  exposed to curency  risks arising out of curent account transactions  in the country, ifso, the details thereof; and
- b) whether the transactions  under the facility will be covered under  a tripartite agteement  involving the Indian subsidiary, its non-resident  parent/treasury  and the bank, ifso, the details  thereof?

## Ai'iSWER

## MINISTER OF STATE IN THE MINISTRY OF F'INANCE (SHRI P. RADHAKRISHNAN)

- (a) The Reserve Bank of India, vide A.P. (DIR Series) Circular No. 41 dated March 21, 2017 provided operation flexibility to multinational entities and their Indian subsidiaries  who are exposed to currency  risks arising  from current  account  transactions emanating in lndia. The details ofoperational flexibility  for lndian subsidiaries of Non-resident  Companies as provided in Annex-I to tle RBI circular  dated  21 .03 .2017 are shown at Annex-A.
- (b) As per para 4 (i) of Annex-I to the above RBI circular dated March 21, 2017  ,  the transactioos under this faciiity will be covered  under a tdpartite agreement  involving  the lndian subsidiary,  its non-resident  parenVtreasury  and the Authorised  Dealer  bank. This agreement will include  the exact relationship of the lndian subsidiary  or entity with its overseas reiated entity, relative roles and responsibilities  ofthe parties  and the procedure for the transactions,  including settlement.

## 1. Purpose

To provide operational flexibiliry- for booking  derivative  contracts  to hedge the currency risk arising out of current account transactions  of Indian subsidiaries  of Multi-National  Companies  (MNCs).

## 2.Users

3

Non-resident  parent ofan Indian subsidiary or its centralised  treasury  or its regional treasury  outside India

## 3. Pmducts

All Foreign Currency/Indian  Rupee  (FCY-INR)  derivatives, Over the Counter  (OTC)  as well exchange traded that the Indian  subsidiary  is eligible to undertake  as per Foreign  Exchange  Maragement  Act (FEMA),  1999 and Regulations and Directions issued thereunder.

## 4. Operational Guidelines, Terms and Conditions for hedging

- (i) The transactions under this facility will be covered  under  a tri-partite  agreement  involving  the Indian subsidiary, its non-resident  parcnt  / treasury  and the Authorised  Dealer (AD) bank. This agreement will include the exact relafionship  ofthe Indian subsidiary or entity  with its overseas  related  entity,  relative roles and responsibilities  ofthe parties and the procedure  for the transactions,  including  settlement.  The International  Swaps  Derivative Association (ISDA)  agreement  between the AD bank and the non-resident  entity will be distinct  from this agreement.
- (ii) The non-resident entity should be incorporated in a country  that is member  ofthe Financial Action Task Force (FATF)  or member  ofa FATF-Style Regional body.
- (iii) The AD Bank may obtain Know Your Customer/  Anti Money  Laundering (KYC/AML)  certification on the lines of the format in Annex  XVIII of the Master Direction on Risk Management and lnter Bank Dealings,  as amended from time to time.
- (iv) The non-resident  entity may approach an AD Category-I  bank directly which handles the foreign  exchange transactions  of its subsidiary for booking  derivative  contracs  to hedge the currency  risk of and on the lafter's behalf. (v) The non-resident entity may contract any product either under the contracted  route  or on past performance basis, which the Indian  subsidiary is eligible  to use.
- (vi) The Indian  subsidiary shall be responsible  for compliance  with the rules,  regulations and directions  issued under FEMA 1999 and any other lawVrules/regulations  applicable  to these transactions  in lndia.
- (vii)  The profit/  loss  ofthe hedge  transactions  shali be settled in the bank account  and books ofaccounts ofthe Indian subsidiary. The AD bank shall obtain from the Indian subsidiary  an annual  certificate by its Statutory Auditors  to this effect.
- (viii) The concerned  AD Bank shall be responsible  for monitoring all hedge transactions  (OTC as well as exchange traded) booked by the non-resident  entity and ensuring that the Indian subsidiary  has the necessary underlying exposure  for the hedge  ransactions.
- (ix) AD banks shall  report hedge contracts booked under this facility by the non-resident related entity to Clearing Corporation  of India (CCIL)'s  trade repository with a special identification tag.

## Operational flexibility for Indian subsidiaries of Non-resident Companies