RBI tightens provisioning norms for unhedged forex exposure

Tags: News
Concerned over impact of unhedged foreign currency exposure of corporates on banks, the Reserve Bank today asked lenders to calculate the incremental provisioning of such securities at least once in a quarter.

The extent of unhedged foreign currency exposures of the corporates continues to be significant and this can increase the probability of default in times of high currency volatility, RBI said.

"It has, therefore, been decided to introduce incremental provisioning and capital requirements for bank exposures to entities with unhedged foreign currency exposures," the apex bank said in a notification.

Banks should calculate the incremental provisioning and capital requirements at least on a quarterly basis, it said.

"However, during periods of high USD-INR volatility, the calculations may be done at monthly intervals," it added.

While issuing notification, RBI pointed out that unhedged foreign currency exposures of the entities are "an area of concern not only for individual entity but also to the entire financial system."

It said entities which do not hedge their foreign currency exposures can incur significant losses due to exchange rate movements.

These losses may reduce corporates' capacity to service the loans taken from the banking system and thereby affect the health of the banking system, it added.

Earlier, RBI had issued various guidelines advising banks to closely monitor the unhedged foreign currency exposures of their borrowing clients and also factor this risk into the pricing.

Post new comment

E-mail ID will not be published
CAPTCHA
This question is for testing whether you are a human visitor and to prevent automated spam submissions.

EDITORIAL OF THE DAY

  • It will take at least 4 more quarters for corporate bottomlines to turn around

    Aggregate numbers from corporate results in the June quarter of 2014-15 are hardly different from the previous six quarters, with no positive surprise

FC NEWSLETTER

Stay informed on our latest news!

INTERVIEWS

GV Nageswara Rao

MD & CEO, IDBI Federal Life

Timothy Moe

Goldman Sachs

Chander Mohan Sethi

CMD, Reckitt Benckiser India

COLUMNIST

Tushar Gandhi

Dealing with a sin called insensitivity

Rage and the notion of being above the law — ...

Kuruvilla Pandikattu SJ

India’s greatest gift to the world

What we hear most often about India these days is ...

Gautam Gupta

Why must innerwear be our best kept secret?

While women’s outerwear rules the marketing roost in India, unfortunately, ...

INTERVIEWS

William D. Green

Chairman & CEO, Accenture