The Reserve Bank of India has clarified that Indian firms using overseas direct investments (ODI) with equity participation should stop offering financial products linked to Indian Rupee because of the implication on the exchange rate management of the country.
Any incidence of such product facilitation would be treated as a contravention of the extant Foreign Exchange Management Act (FEMA) and would consequently attract actions, it said.
The central bank said that it has observed eligible Indian parties using ODI automatic route to set up certain structures facilitating trading in currencies, securities and commodities.
Such structures having equity participation of Indian parties have also started offering financial products linked to Indian Rupee (e.g. non-deliverable trades involving foreign currency, rupee exchange rates, and stock indices linked to Indian market, etc.).
RBI has clarified that any overseas entity having equity participation directly / indirectly shall not offer such products without its specific approval given that currently Indian Rupee is not fully convertible and such products could have implications for the exchange rate management of the country.