The Reserve Bank of India (RBI) is close to laying its hands on the books of banks with exposure to forex derivatives.
?An inspection of Indian banks? exposure to forex products is likely to start in May, once their books are closed. The annual inspection is currently on. At present, we do not have the amount of losses incurred by them,? said the central bank?s deputy governor, V Leeladhar.
?If the guidelines for banks are followed in letter and spirit, there cannot be any dispute between them and the customers. And we do not think it will create any systemic risks,? said Leeladhar.
When asked about allegations of mis-selling against banks by companies such as Rajshree Sugars, he said, ?I am not here to judge whose allegations are correct. There are courts to do that.?
RBI governor YV Reddy earlier said that the central bank had received representations from companies about the derivative deals involving banks.
ICICI Bank, Yes Bank, Axis Bank, Kotak Mahindra Bank and Bank of India have been dragged to court by some of their clients for mis-selling derivative products. Companies, which brought forex derivative contracts and incurred losses marked to market, say the banks failed to fully explain the risks behind the deals. An analyst at a domestic brokerage said that out of the total losses linked to derivatives, banks may end up bearing only 10% and the rest will be borne by the companies.
?About 10% business of banks is dependent on such products. The remaining 90%, of the main businesses, is still strong for them,? he added.
With RBI likely to start an inspection of banks? books, a senior derivatives expert at a large research firm said the central bank may penalise banks for not following ethics. ?Banks will come under the strong scrutiny of RBI, as the issue has been brought before the court. But the matter will become transparent now,? he said.
Chanda Kochhar, ICICI Bank?s joint managing director, said losses from derivatives transactions to the corporate sector were lesser than the profits it earned, implying that risks to the Indian financial sector from such deals were manageable.
?It is not a very large systemic issue. The loss is something that can be absorbed by the corporate sector,? she said. ?We have seen many companies making profits out of such transactions. I think it is unfair to say that corporates did not understand the product (derivatives),? Kochhar said.