The Reserve Bank of India (RBI) on Monday said banks could offer structured derivatives through foreign branches even if these products weren’t allowed in India. The central bank, however, added these products could only be sold in established financial markets.
“It has been decided if foreign branches/subsidiaries of Indian banks propose to offer structured financial and derivative products that are not specifically permitted by the Reserve Bank in the domestic market, they may do so only in established financial centres outside India such as New York, London, Singapore, Hong Kong, Frankfurt and Dubai,” RBI said.
“At other centres, banks might offer only those products that are specifically permitted in India.”
RBI asked banks to ensure their foreign arms dealing with such products had adequate knowledge, understanding and risk-management capabilities to handle such products.
The change marks a revision of rules passed in 2008 that required domestic banks to secure RBI’s approval before offering complex derivative products, which weren’t allowed here, abroad.
RBI also said the derivatives should comply with host-country regulations, adding banks needed to secure prior approval from their boards, as well as the authorities concerned, in foreign jurisdictions. “Banks should continue to adhere to stringent host and home regulations, in terms of these products. In particular, they should ensure the suitability and appropriateness policy is strictly adhered to, as mandated by the Reserve Bank and the host regulators,” it added.