The authorised dealers would be able to extend forward cover facility to FIIs to cover the appreciation in the market value of existing investments as well. This was clarified today in the circular issued by the Reserve Bank of India to operationalise its decision to make available this facility to FIIs. The Reserve Bank has announced the decision to allow forward cover facility to FIIs for their incremental investments on June 11, 1998.

The Reserve Bank in its circular has stated that the amount eligible for cover will be the difference between the market value of investments as at the close of business on June 11, 1998 converted at the RBI reference rate of Rs. 42.38 for one US dollar and the market value of investments at the time of providing cover converted at the current rate or fresh inflows since June 11, 1998, whichever is higher. The Reserve Bank has instructed that for the purpose of offering forward cover facility the authorised dealers have to compute the values of Investments including the pipeline transactions. It has also clarified that fresh inflows would include the reinvestments of cash balances lying in the accounts of FIIs as at the close of business on June 11, 1998.

For subsequent repatriation of funds, FIIs could either utilise the forward contract or access the spot market. In case any FII wishes to continue with forward contract it should be ensured that the dollar value of total investments in India exceeds the value of the forward contract. In other words, so far as the total dollar value of the outstanding FII investments exceed the value of the forward cover, the contracts could be treated as valid contracts. The authorised dealers could extend the cover fundwise or FII wise whichever is operationally convenient.

The Reserve Bank has extended the same facility mutatis mutandis to NRIs/OCBs also for their portfolio investments.

Alpana Killawala
General Manager

Press Release : 1997-98/1219