 "India Inc's excessive reliance on forex borrowing risky: RBI")
"Heightened volatility makes the debt rollovers difficult or at high interest rates," said RBI's deputy governor H R Khan, who was speaking at the Bankers' Club at Thiruvananthapuram yesterday. A copy of Khan's presentation was uploaded in RBI website today.
Indian companies' foreign borrowings have gone up sharply due to availability of funds at cheap rates. high unhedged exposure poses risk as the rupee has weakened significantly in months. The Indian currency has depreciated 8.5% against the greenback since start of April.
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The central bank has been voicing concern over the unhedged foreign exposure of India Inc and asked banks to put in place a mechanism to rigorously evaluate the risks arising out of unhedged foreign currency exposure of corporates and price them in the credit risk premium.
Banks were also also advised to stipulate a limit on the unhedged positions of corporates on the basis of banks’ board-approved policy. Only about 40% of the Indian companies exposure are hedged.
During the annual policy review in May, RBI had said that the high CAD along with weakening external sector parameters, the stressed fiscal situation, and increasing corporate leverage, especially external commercial borrowings with unhedged exposures were identified as other challenges to macroeconomic stability.