The Reserve Bank of India on Thursday asked banks to consider policies to limit unhedged foreign-currency exposures of clients to reduce potential credit losses.
The regulator also asked banks to "rigorously evaluate" the unhedged foreign-currency exposures of clients and price credit facilities accordingly.
"In view of the importance of prudent management of foreign exchange risk, it has been decided that banks, while extending fund based and non-fund based credit facilities to corporates, should rigorously evaluate the risks arising out of unhedged foreign currency exposure of the corporates and price them in the credit risk premium," RBI said in a release today. Further, banks may also consider stipulating a limit on unhedged position of corporates on the basis of bank’s Board approved policy, it added.
At present, banks are required to review the unhedged portion of foreign currency exposure of large clients every month.
"Excessive risk-taking by corporates could lead to severe distress to them and large potential credit loss to their bankers in the event of sharp adverse movements in currencies," RBI said in a notification.
