RBI/2012-13/
535, DBOD.No.BP.BC.102/21.04.157/2012-13, June 18, 2013
The
Chairman and Managing Directors/ Chief Executive Officers of
All
Scheduled Commercial Banks (excluding RRBs and LABs) &
All
India Term-Lending & Refinancing Institutions
Banks
are permitted to defer, at their discretion, the premium on plain vanilla
options sold by them to users subject to certain conditions with effect from
January 25, 2012. It has now been decided to extend this facility to cost
reduction forex option structures in which the liability of the users never
exceeds the net premium payable to the bank under any scenario. This facility
would be subject to the following conditions:
(i). Banks should carry out necessary
due diligence with regard to the ability of users to adhere to the premium
payment schedule, in accordance with their Board approved policy in this
regard, before extending this facility to the users.
(ii). Payment of premium for option
structure with maturity of more than 1-year may be deferred, provided the
premium payment period does not extend beyond the maturity date of the
contract.
(iii). The premium should be received
uniformly over the maturity of the contract and the periodicity of such payment
should be at least once in a quarter.
(iv). This facility should not be
allowed for the contracts which are on past performance basis.
2.
Such option
structures would continue to be governed by instructions (as amended from time
to time) on
· Suitability
and appropriateness as regards structured derivative products laid down
in ‘Comprehensive Guidelines on Derivatives: Modifications’ dated November 2,
2011 issued by Department of Banking Operations and Development, RBI; and
· Cost
Reduction Structures as laid down in Master Circular on ‘Risk Management and
Inter-Bank Dealings’ dated July 2, 2012 issued by Foreign Exchange Department,
RBI.
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