Banks must monitor unhedged forex exposures: RBI

The Reserve Bank of India on Tuesday directed banks to put in place a mechanism to evaluate the risks from unhedged foreign currency exposure of companies.

Banks will also be allowed to charge a premium on the credit offered to companies that not have taken cover for currency fluctuation risks.

The move is aimed to protect banks' credit quality, under stress in the uncertain macroeconomic environment.

"Banks are also being advised to consider stipulating a limit on the unhedged position of companies, on the basis of board-approved policy," the central bank said in its second quarter monetary policy statement on Tuesday.

Banks will also need to create a system ensuring sharing of information on unhedged foreign currency exposures.

This has to be in place by the

end of December.

Bankers said they needed more clarity from RBI before setting up the new systems.

"It is not clear what will be the credit risk premium and how to calculate it.

"We need to discuss this with RBI before taking any steps," said the chief risk officer of a large foreign bank.

However, most bankers agreed that lenders would support the move, since it would reduce the risk of a rise in non-performing assets.

"We are increasingly seeing that companies are becoming more conservative because of the uncertain economic conditions.

"Many companies are now willing to take hedges, as the currency markets are volatile.

"Banks will support the move and work with RBI in putting in place the monitoring mechanism," said the chief financial officer of a Mumbai-based private sector lender.

In May, a media report claimed about half of India Inc's foreign currency exposures were unhedged.