In yet another step to rescue the battered rupee, the Reserve Bank of India, on Thursday, tightened hedging rules by making it mandatory for foreign institutional investors (FIIs) to obtain consent of holders of participatory note (P-Note) and derivative instruments before hedging. FIIs must have a mandate from the P-Note or Offshore Derivative Instrument (ODI) holder for the purpose (of hedging), the RBI said in a notification.

“Further, the bank is expected to verify such mandates, in cases where this is rendered difficult, they may obtain a declaration from the FII regarding the nature or structure of the PN/ODI establishing the need for a hedge operation and that such operations are being undertaken against specific mandates obtained from their clients,” it said.

The RBI’s order on P-notes was expected to further curb speculation on rupee, by ensuring all P-Note related derivative trades were done for genuine customer needs, analysts said.

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