India not ready for complex instruments: FM

At a time losses from derivatives are haunting companies and banks, Finance Minister P Chidambaram has advocated caution in introducing complex financial products saying India is not ready for such exotic instruments.

"Global financial markets are in turmoil and we are getting to know about the problems associated with highly complex products like collateralised debt obligations (CDOs). In India, we have noticed problems with currency swaps. Many banking entities have been dragged to court for alleged losses incurred by the companies due to complex foreign exchange derivative products," Chidambaram said at the launch of the first set of Crisil Complexity Levels, a tool for understanding and analysing risks associated with financial instruments.

He, however, declined to elaborate on the disputes involving banks and companies saying the matter was sub-judice. But Chidambaram said that in a liberalising economy like India, "any scam or perceived scam" can act as a setback to reforms.

"The context of the economy has to be taken into account while taking a decision about such financial products. Why sell products for which there is no compelling demand?" he said.

During a packed programme in the financial capital where he attended six events, Chidambaram started the day expressing concern over large companies delisting their securities.

"Companies may be delisting for good reasons, but it takes companies out of public scrutiny. There is a large scope to improve governance standards in corporate bodies," he said.

He also hinted at a possible increase in the foreign investment ceiling for the debt market from $1.5 billion a year. A higher cap would ease the rush for external commercial borrowings.

But Chidambaram said a decision had to be taken in consultation with the Reserve Bank of India as the central bank was cautious about expanding the total debt level.