Dogged by litigation, banks are actively negotiating with their clients to restructure the ill-timed derivatives accounts. The banks are persuading the clients, which have gone to the court or threatened to do so, to settle affected accounts through multiple options.
The multiple options for restructuring the derivate deals between banks and clients are: split the losses out of the deals between both of them and close the account, extend the tenure of the deals to provide more time for payment of dues, or replace the deal with other deals with new clauses.
Confirming the development, Chanda Kochhar, joint managing director of ICICI Bank, said, ?We are open to extending the tenure of such deals by a few months if companies are genuinely willing to pay us. We would encourage companies to take some more time to pay us and work out a part-payment or a payment at one go strategy to resolve this issue.??
ICICI Bank has the largest exposure in derivative deals among Indian banks.
?We follow such sort of practice even where our loan repayments are concerned,?? she added. She maintained that the derivative deals have been very valid transactions. ?I do not think corporates have a strong point to prove against banks. We are strongly going to prove our stand in the court regarding these transactions. These are the same transactions on which corporates have made money and so never disputed them earlier.?
She explained that as companies do not want to declare their derivative losses in their books because of accounting standards, banks have been dragged to the courts. The companies have hidden their losses under the pretext of a dispute.
It is believed that other banks like SBI, HDFC Bank and Axis Bank have also opened the negotiation process with their clients.
Forex expert and chief executive officer of Mecklai Financial, Jamal Mecklai, said the real picture out of the derivative losses is yet to be known as the banks are not revealing their total exposure to this segments. “The best way for the banks to settle the matter is through negotiation with the companies. Restructuring of such deals is not new to the industry. The inspection of the banks? books by the Reserve Bank of India will bring further transparency in the whole issue,?? he explained.
