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RBI wants foreign apex bank risk weight linked to country rating
As per the revised norms, foreign central banks with the highest rating will attract zero risks and accordingly, bonds issued by them will be assigned zero risk weight.
Mumbai: The Reserve Bank on Thursday said investments in overseas treasury bills by banks should be linked to the sovereign rating of the country for capital provisioning.
This decision was taken after examining the issue of risk weights in respect of claims on foreign central banks, RBI said in a notification.
As per the revised norms, foreign central banks with the highest rating will attract zero risks and accordingly, bonds issued by them will be assigned zero risk weight, it said.
Unrated foreign central banks would invite risk weight of 100 percent while the lowest-rating banks would attract 150 per cent risk weight.
In a separate notification, RBI allowed individuals, firms and companies, who have actual or anticipated foreign exchange exposures, to book foreign exchange forward and FCY-INR options contracts up to USD 1 million without documentation on the basis of a simple declaration.
This, RBI said, has been done with a view to further liberalising the existing hedging facilities.
Cancellation and rebooking of contracts are permitted while contracts booked under this facility will normally be on a deliverable basis, it added.
"Based on the trackrecord of the entity, the Authorised Dealers Category I (AD Cat-I) bank concerned may, however, call for underlying documents, if considered necessary, at the time of rebooking of cancelled contracts," RBI added.
In the fourth bi-monthly monetary policy statement, RBI had proposed to comprehensively review documentation-related requirements in the OTC market.
The possibility of participation by financially sophisticated investors up to certain limits in currency markets without underlying exposure will also be examined, it had said.
With regard to Asian Clearing Union (ACU) mechanism, RBI said: "It has been decided to permit the use of the Nostro accounts of commercial banks of member countries, i.e. The ACU dollar and ACU euro accounts, for settling payments of both exports and imports of goods and services."
Nostro accounts are held in a foreign country by a domestic bank, denominated in the currency of that country. Such accounts are used to facilitate settlement of foreign exchange and trade transactions.