Banks told to get details of borrowers forex exposure

Mumbai, Nov 29 | Updated: Nov 30 2004, 05:30am hrs
The Reserve Bank of India (RBI) has asked domestic banks to secure information from their large borrowers on their unhedged forex exposures. This, in turn, would enable these banks to assess the risk of their own exposure to such corporates on an on-going business, said the central bank in its latest Report on Trend and Progress of Banking in India.

RBI said a recent study of select banks revealed that though most have adopted policies mandated by their boards, they often rely on natural hedge available with their customers.

Further, information on the total exposure of the corporate clients was also not readily available for banks, said RBI.

The domestic companies raised resources through external commercial borrowings (ECBs) and importers kept foreign currency positions unhedged in the wake of excess supply conditions and drop in forward premiums.

In the recent past, Indian corporates have increased their dependence on ECBs with the appreciation of rupee vis-a-vis the dollar coupled with soft global interest rates, said the apex bank.

However, the emergence of a vastly different scenario of hardening of overseas interest rates may affect the corporate balance sheets.

This, in turn, would jeopardise the banking sector on account of vulnerability to credit risk due to unhedged exposure of their clients.