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May 2009

Hedging of freight risk by domestic oil-refining, shipping companies and other companies

By Pinky Shah, Sonalee Godbole, Gaurang Gandhi, Tarun Ghia, Nimesh Dedhia, Vijay Kewalramani
Chartered Accountants
Reading Time 1 mins
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Part C : RBI/FEMA

Given below are the highlights of certain RBI Circulars and Press Notes
issued by DIPP

  1. A. P. (DIR Series) Circular No. 50, dated February 4,
    2009

Hedging of freight risk by domestic oil-refining,
shipping companies and other companies


This Circular provides that banks that have been granted
permission by RBI to approve commodity hedging transactions, are permitted to
allow hedging of freight risk by domestic oil-refining companies and shipping
companies on the following terms and conditions :


i) The hedging can be undertaken as plain vanilla
Over-the-Counter (OTC) or exchange traded products in the international
market/exchange.

ii) The exchanges on which the products are purchased
must be a regulated entity.

iii) The maximum tenor permissible will be one year
forward.


In case of hedging of freight risk by other companies,
banks will have to obtain prior permission of RBI on behalf of their
customers.



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