Amid reports of corporates making losses on hedging forex products other than dollar, the Reserve Bank may soon come out with guidelines on forex derivatives, which is widely expected to discourage banks from trading in foreign currencies other than in rupee-dollar.
"We are working on the guidelines of forex derivatives," an RBI spokesperson told PTI.
The apex bank, however, made it clear that it has not issued any directive so far to banks trading on exotic forex products, which had reportedly resulted in making losses to corporates to the tune of Rs 1,000 crore (Rs 10 billion).
"No such directions have been issued so far," RBI said in the wake of reports that several companies had opted for complex forex derivative products in the phase of steep appreciation in rupee.
Exotic hedging structures involve conversion of dollar receivables into other currencies like Swiss Franc or Japanese Yen, after taking a view on the movement of those currencies.
Corporates with export receivables hedge foreign currency exposures in a bid to prevent losses due to appreciation in Rupee.
However, companies started complaining when they suffered losses owing to appreciation of other currencies as well.
Private sector Yes Bank's Managing Director and CEO Rana Kapoor said, the corporate losses are due to lack of understanding among 'customers' about the hedging products.
"Corporates have been making profits through hedging in highly volatile foreign currencies and started making complaints when they met losses following steep appreciation in the currencies. They should have understood the product completely before hedging," Kapoor said.
According to market-watchers a few banks, including two foreign banks, have been increasingly engaged in trading forex derivatives of their corporate customers instead of merely hedging their exposure.
Country's second largest lender, ICICI Bank is also facing a petition in the High Court, from a local firm which was asked to pay an amount as margin money on their derivatives contract.
ICICI Bank's Executive Director Madhavbi Puri Buch said, the chief finance officer of the company had agreed to enter into the deal and pay the margin money if its position went beyond a particular limit in the derivatives market.
"The company had agreed to the terms of the bank, requiring them to post a margin in case their market to market position exceeds their limit," Buch said.
Indian Banks Association's Chief Executive H N Sinor said that he did not wish to comment on the matter.
The RBI was unlikely to ban forex hedging in other currencies, said the Head (Sales) of a foreign bank.
He, instead, called for better self-regulation from all the participants in the forex derivatives market.
"Both the parties (banks and corporates) need to understand the market better and study it carefully while hedging in foreign currencies," he said.
Hedging is an effective tool for medium and large-sized, corporates having huge export commitments, to prevent losses from unexpected fluctuations in the exchange rates.
