RBI Cracks Whip On Unhedged Fx Exposures

Mumbai, Nov 3: | Updated: Nov 4 2003, 05:30am hrs
The Reserve Bank of India (RBI), it seems, has got fed up with the kind of antipathy that corporates have been showing in hedging their foreign currency borrowings.

In a carrot and stick policy, the RBI has now decided that, henceforth, all foreign currency loans by banks above $10 million, can be extended only on the basis of a well laid out policy of the board in order to ensure hedging.

However, the RBI said that banks may not insist that their corporate clients to hedge forex loans which are extended to finance exports. But, banks should assure themselves that such customers have uncovered receivables to cover the loan amount, the RBI said categorically. Corporates will also get away with unhedged positions when the forex loans are extended for meeting forex expenditure, the RBI said.

The RBI had over a period of two years been urging the corporates to hedge their forex positions.

However, it is noticed that despite such exhortations, hedging has not been ensured. This may entail significant but avoidable risks to some corporate balance sheets, possibly impacting the quality of banks assets in some cases, the RBI stated.

The RBI has also eased the export credit norms in a big way. Exporters are normally required to realise the full value of export proceeds within 180 days of shipment. For exporters who are unable to realise the outstanding export dues, powers have been delegated to banks to permit write-off up to 10 per cent of the total export proceeds realised by the concerned exporter during the preceding calendar year subject to certain conditions.