With foreign exchange derivative bets turning against the Indian banks and hitting their bottomlines, the finance ministry has asked public sector banks to capture 100% data on off-balance sheet items from all their branches in a timely manner. Though domestic banks may have no exposure to the sub-prime crisis in the US, finance minister P Chidambaram in his meeting with PSU bank CEOs discussed the fact that ?some of the banks had exposure to the credit derivatives and had incurred a mark-to-market losses on this portfolio.?
Also, with banks? clients taking them to court over alleged mis-selling of these derivative products, the government has asked banks to deal in simple derivative products, which the customers can easily understand. In addition, banks have also been directed to maintain transparency on derivative reporting. ?Customers must need to understand the derivative products, we want banks to deal in simple derivative products and avoid the complex ones which the customers do not understand. This would reduce risks in the future,? PK Bansal, minister of state (finance) told FE.
Among the banks in India, ICICI Bank and the State Bank of India are known to have the maximum exposure in foreign market. The central bank had earlier issued guidelines on the Asset Liability Management (ALM) system to the banks stipulating a simple maturity ladder approach along with regulatory gap limits for negative mismatches.
Now, with credit derivatives? risks coming to the fore, banks have been asked to capture liquidity risk in time buckets consisting of the next day, or a timeframe of two to seven days and furnish all statements relating to structural liquidity to the Reserve Bank of India.