In the wake of the recent turmoil in Indian banks on account of the credit derivative business, the Reserve Bank of India (RBI) has decided to hold independent meetings with individual banks having high forex derivative exposures to understand the exact impact of their transactions and the extent of losses they have had to incur.
In these meetings, expected to take place in coming weeks, the central bank would also seek to understand if there has been ?mis-selling? by the banks as well as whether the RBI?s current guidelines on the subject were adhered to.
With the most active currency derivative dealing desks, private players such as ICICI Bank, Axis Bank, Yes Bank and Kotak Mahindra Bank, as well as the State Bank of India (SBI) have taken a significant hit on their derivatives portfolio.
The central bank will seek to understand the circumstances that have led to the huge losses due to derivative trading, in its one-on-one meetings with the banks.
Meanwhile, the finance ministry has directed banks to set up a specialised monitoring system to assess the risks arising out of derivative trading.
Public sector banks have already been asked to install a highly qualified team of experts to deal in the credit derivative business.
?For derivative trading in future, the finance ministry has asked banks to deal in products that the clients are comfortable with. In addition, banks may be required to fully explain the process including the pros and cons of the system in a bid to avoid any discord at a later stage,? an official told FE .
Companies which have suffered losses are likely to be asked to re-trade to salvage the situation. The issue was brought up for discussion at the meeting held by Finance minister P Chidambaram with PSU bank head honchos last week. Banks have also been asked to maintain clarity and transparency in the future while dealing in derivative products.