RBI panel proposes list for hedging commodities in global markets

Mumbai: A Working Group of RBI on Thursday made a case for a "positive list" of commodities comprising metals, energy and agro products which can be hedged in the overseas markets by domestic traders.

Exposure of Indian entities to commodity price risks has been accentuated by growing integration of the economy with the rest of the world and rising volumes of cross-border trade.

As of now, most hedging activity is in base metals though a reasonably wide variety of products are hedged offshore by Indian corporates.

The Reserve Bank had set up a working group to review the guidelines for hedging of commodity price risk by residents in the overseas markets during the development phase of the domestic commodity derivative market.

"The Group recommends a 'positive list' of commodities which can be hedged in the overseas markets by all residents i.e. by both domestic users and exporters/importers alike," the report said, on which the central bank has sought comments from stakeholders till December 15.

The Group headed by Chandan Sinha (former Executive Director, RBI) also said that the Reserve Bank of India could periodically review the list based on market feedback.

The proposed list includes gold, silver, zinc, tin, crude oil and its derivatives, coal, natural gas, tea, coffee, sugar and cocoa.

One of the 10 recommendations of the Group also pertains to banks in the hedging activities.

It made has made a case that "...Domestic banks and/or their subsidiaries active in capital markets be allowed to offer commodity hedging facility to their constituents, initially on a back-to-back basis, on both OTC and exchanges, including on domestic exchanges.".

The panel is also in favour of a uniform approach in extending facilities to hedge commodity price risk in overseas markets that is agnostic to the place of procurement of the commodity.

This, the report said, can be done by doing away with the differences in treatment of importer/exporter on the one hand, and domestic buyers/sellers on the other.