FM seeks details on derivatives

"(I) have asked the public sector banks to review their derivatives portfolio and make sure customers understand them (derivatives products)," Chidambaram said after meeting public sector bank chiefs here.  A state-run bank chief said Chidambaram has told them to be cautious and conservative while selling exotic products to clients.  An internal note circulated by the financial services department of the finance ministry said banks active in the derivatives market and with substantial mark-to-market losses on their books were being called for a detailed discussion.  However, a finance ministry official said only general discussions have been held with banks and they have been advised to disclose their derivatives exposures so that there are no undisclosed liabilities.  State Bank of India has disclosed that its clients may take a Rs 700-crore hit due to exposure to derivatives trading. Though not all, a number of public sector banks have exposure to derivatives transactions, banking industry sources said.  Public sector banks have been sensitised about the issue of corporate governance, suitability and appropriateness of selling complex derivatives products to customers.  The issue assumes significance after many corporations have resorted to legal action against banks, repudiating their liability under derivatives contracts on the grounds that these products were sold to them in violation of the Reserve Bank of India regulations.  The Institute of Chartered Accountants of India has also asked companies to recognise mark-to-market losses on derivatives deals for the financial year 2007-08 even though relevant norms make their disclosure mandatory from 2011.