REPORT ON OFFSHORE RUPEE MARKETS

 

For: Mains

Topics covered: Recommendations of the Usha Thorat committee

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News Flash

The Task Force on Offshore Rupee Markets, set up by the Reserve Bank of India and chaired by Smt. Usha Thorat has submitted its report to the Governor.

 

Why Taskforce was set up?

It was set up to examine the issues relating to the offshore Rupee markets in-depth and recommend appropriate policy measures while factoring in the requirement of ensuring the stability of the external value of the Rupee including measures for incentivising non-residents to access the onshore foreign exchange market.

 

The key recommendations of the Task Force are:

• To extend onshore market hours to improve access to overseas users
• To permit Indian banks to freely offer prices to global clients around the clock
• Enable Rupee derivatives (settled in foreign currency), to be traded in the International Financial Services Centers (IFSC) in India, to begin with on exchanges in the IFSC.
• To allow users to undertake forex transactions up to USD 100 million in the OTC currency derivative market without the need to establish underlying exposure.
• To facilitate non-residents to hedge their foreign exchange exposure onshore by:

1. Establishing a central clearing and settlement mechanism for non-resident transactions in the onshore market
2. Implementing margin requirement for non-centrally cleared OTC derivatives and allowing Indian banks to post margins abroad
3. Aligning the tax treatment of foreign exchange derivatives with that in major international centres
4. Centralising the KYC requirements across financial markets with uniform documentation requirement.

 

International Financial Services Centers (IFSC)

An IFSC caters to customers outside the jurisdiction of the domestic economy. Such centres deal with flows of finance, financial products and services across borders. London, New York and Singapore can be counted as global financial centres.

What are the services an IFSC can provide?

1. Fund-raising services for individuals, corporations and governments.
2. Asset management and global portfolio diversification undertaken by pension funds, insurance companies and mutual funds
3. Wealth management
4. Global tax management and cross-border tax liability optimization, which provides a business opportunity for financial intermediaries, accountants and law firms.
5. Global and regional corporate treasury management operations that involve fund-raising, liquidity investment and management and asset-liability matching
6. Risk management operations such as insurance and reinsurance
7. Merger and acquisition activities among trans-national corporations

 

Source: RBI

 

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